Tax progressivity and self-employment: evidence from Canadian provinces

Author
Ferede, Ergete
Faculty Advisor
Date
2013
Keywords
self-employment , tax progressivity , occupational choice
Abstract (summary)
We examine the effects of personal income tax progressivity—in the sense of rising marginal income tax rate—on self-employment. The impacts of income tax progressivity on self-employment depend on the relative effects of taxing success and the presence of tax evasion opportunities. Empirical estimates using Canadian provincial data for the period 1979—2006 indicate that there is a negative association between income tax progressivity and self-employment. This suggests that the adverse impact of income tax on entrepreneurial risk-taking outweighs the tax evasion opportunities for the self-employed. An important implication of our results is that a reduction in income tax progressivity encourages self-employment. The empirical estimates are robust to the various sensitivity checks.
Publication Information
Ferede, E. (2013) “Tax Progressivity and Self-employment: Evidence from Canadian Provinces.” Small Business Economics, 40(1):141-153.
Notes
Item Type
Article
Language
English
Rights
All Rights Reserved