The Determinants of Self-Employment - Evidence from Self-Employed Persons in Poland

Purpose: The primary purpose of the research is to build a model that makes it possible to define the categories of entities through which self-employment is used as a form of tax optimization. This would facilitate the creation of more efficient tax instruments that prevent false self-employment without discouraging real entrepreneurship. Design/Methodology/Approach: The research method is a survey carried out from September 2020 on a representative sample of 400 Polish self-employed persons representing specific trades. Subsequently, machine learning classification algorithms were implemented to find factors characterizing self-employed persons with different tax-optimization attitudes. Findings: The research results have shown that classification and regression tree (CART) and bootstrap aggregation (bagging) tree models can be helpful to determine whether a self-employed person is likely to use self-employment as a tax optimization method. The three main factors determining classification are the self-employed person’s attitude towards risk, the industry in which they work, and the length of their business experience. Practical Implications: The research performed made it possible to identify factors that affect self-employed people’s attitude towards reducing their tax burden, in particular, to verify the scope of taxpayers becoming self-employed to reduce their tax burden (treating self-employment as a form of tax optimization), and to determine whether there is a way to shape tax rules to encourage entrepreneurship while minimizing the risk of abuse such as forcing employees to become self-employed or people registering as self-employed to avoid taxation. Originality/Value: I have proposed the opposite than pervious approach: this research is performed among self-employed persons to extend knowledge about their attitude toward becoming self-employed. This approach should be more efficient in understanding the process of individual decision-making between becoming an employee or self-employed.