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Empirical Economics

, Volume 36, Issue 3, pp 487–513 | Cite as

Income taxes and entrepreneurial choice: empirical evidence from two German natural experiments

  • Frank M. FossenEmail author
  • Viktor Steiner
Original Paper

Abstract

Does tax policy affect entrepreneurial choice? We use two tax reforms in Germany as “natural experiments”. These reforms reduced the marginal income tax rate for entrepreneurs with income above a certain threshold, with the exception of freelance professionals. The two conditions for belonging to the treatment group allow us to apply a “difference-in-difference-in-difference” identification strategy to estimate the effects of the tax rate reductions. We base our analysis on the microcensus, the official representative continuous household survey in Germany. The results indicate that the tax rate reductions increased the probability of choosing self-employment.

Keywords

Taxation Entrepreneurship Natural experiment Difference-in-difference-in-difference 

JEL Classification

H24 H25 J23 

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Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.German Institute for Economic ResearchDIW BerlinBerlinGermany
  2. 2.Free University of BerlinBerlinGermany
  3. 3.DIWBerlinGermany

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