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Small Business Economics

, Volume 38, Issue 4, pp 495–513 | Cite as

Tax policy and entrepreneurship: empirical evidence from Sweden

  • Åsa Hansson
Article

Abstract

This paper examines the relationship between income taxes and the decision to become self-employed using data from Sweden. By making it possible to track a large number of individuals over extended time periods and across a number of tax rate changes while controlling for important additional determinants, available tax-return information from Sweden allows for statistical estimation of the influence that income taxes have on the probability of becoming self-employed. The changing tax rate structure combined with the fact that the Swedish tax system does not provide additional tax benefits to small-business entrepreneurs compared with those who work as employees provides a powerful setting through which to examine the tax rate structure’s influence on individuals’ choice to become self-employed. Contrary to many earlier studies based on US data, this paper finds that both average and marginal taxes have a negative impact on the decision to become self-employed.

Keywords

Firm start-ups Self-employment Tax policy Income taxes 

JEL Classifications

H24 H26 J24 L26 

Notes

Acknowledgements

I am grateful to two anonymous referees for very constructive and insightful comments. I also wish to thank participants at the IIPF meetings in Warwick 2007, and Dan Johansson and Niclas Berggren at Ratio for their helpful suggestions.

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Copyright information

© Springer Science+Business Media, LLC. 2010

Authors and Affiliations

  1. 1.Department of EconomicsLund UniversityLundSweden

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