Taxation and entrepreneurship in a welfare state
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Does tax policy affect the rate of self-employment in a modern welfare state? This question is analyzed empirically based on Swedish data for the entire postwar period. Available tax data indicate that payroll taxes have had a negative influence on the unincorporated rate of self-employment, though the effect is modest. No effects from regular labor income taxation or capital gains taxation are found. The paper improves upon earlier studies in that it tries to separate the effects of different taxes and uses cointegration techniques. A further extension is that it studies a Scandinavian high-tax welfare state. Earlier time-series studies analyzing self-employment and taxation have, with few exceptions, been based on data from countries with relatively low tax levels and less comprehensive welfare systems, notably the USA and the UK.
KeywordsEntrepreneurship Self-employment Taxation Tax policy Time-series analysis Welfare state
JEL ClassificationsH2 J2 L26 L5
The author thanks Johan Almenberg, Niclas Berggren, Robin Douhan, Magnus Henrekson, Simon Parker, Lars Persson, and the seminar participants at the Ratio Institute and at the 2008 SEA/SDAE Conference in Washington, DC for useful comments and suggestions, Carl Magnus Bjuggren for support with data, and Johanna Rickne for help with the econometrics. The usual disclaimer applies. Financial support from the Jan Wallander and Tom Hedelius Research Foundation and from the Gustaf Douglas Research Program on Entrepreneurship at the Research Institute of Industrial Economics (IFN), Stockholm, is gratefully acknowledged.
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