IDEAS home Printed from https://ideas.repec.org/a/wly/soecon/v65y1999i4p757-773.html
   My bibliography  Save this article

Marginal and Average Tax Rates and the Incentive for Self‐Employment

Author

Listed:
  • Martin T. Robson
  • Colin Wren

Abstract

The paper examines how the incentives for individuals to take up self‐employment, rather than paid employment, are influenced by the marginal and average income tax rate. A model is developed in which an individual optimally chooses the supply of labor effort and the amount of tax to evade. Assuming that remuneration is more responsive to effort but that the opportunities for evasion are greater in self‐employment, we find a negative relationship between self‐employment and the marginal tax rate but a positive relationship with the average rate. This is supported by empirical evidence for 15 OECD countries over the 1980s.

Suggested Citation

  • Martin T. Robson & Colin Wren, 1999. "Marginal and Average Tax Rates and the Incentive for Self‐Employment," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 757-773, April.
    • Handle: RePEc:wly:soecon:v:65:y:1999:i:4:p:757-773
    DOI: 10.1002/j.2325-8012.1999.tb00198.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/j.2325-8012.1999.tb00198.x
    Download Restriction: no
    File URL: https://libkey.io/10.1002/j.2325-8012.1999.tb00198.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kihlstrom, Richard E. & Laffont, Jean-Jacques, 1983. "Taxation and risk taking in general equilibrium models with free entry," Journal of Public Economics, Elsevier, vol. 21(2), pages 159-181, July.
    2. Kanbur, S. M., 1981. "Risk taking and taxation : An alternative perspective," Journal of Public Economics, Elsevier, vol. 15(2), pages 163-184, April.
    3. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    4. Cowell, Frank A, 1985. "The Economic Analysis of Tax Evasion," Bulletin of Economic Research, Wiley Blackwell, vol. 37(3), pages 163-193, September.
    5. Aronsson, Thomas & Wikstrom, Magnus & Brannlund, Runar, 1997. "Wage Determination under Non-linear Taxes: Estimation and an Application to Panel Data," Oxford Economic Papers, Oxford University Press, vol. 49(3), pages 404-418, July.
    6. Lott, John Jr., 1990. "The effect of conviction on the legitimate income of criminals," Economics Letters, Elsevier, vol. 34(4), pages 381-385, December.
    7. Ben Lockwood & Alan Manning, 1993. "Wage Setting and the Tax System: theory and Evidence for the UK," CEP Discussion Papers dp0115, Centre for Economic Performance, LSE.
    8. Robson, Martin T, 1996. "Macroeconomic Factors in the Birth and Death of U.K. Firms: Evidence from Quarterly VAT Registrations," The Manchester School of Economic & Social Studies, University of Manchester, vol. 64(2), pages 170-188, June.
    9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    10. Jung, Young H. & Snow, Arthur & Trandel, Gregory A., 1994. "Tax evasion and the size of the underground economy," Journal of Public Economics, Elsevier, vol. 54(3), pages 391-402, July.
    11. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
    12. Acs, Zoltán J & Audretsch, David B & Evans, David S, 1994. "Why Does the Self-Employment Rate Vary Across Countries and Over Time?," CEPR Discussion Papers 871, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kevin B. Moore, 2004. "The effects of the 1986 and 1993 tax reforms on self-employment," Finance and Economics Discussion Series 2004-05, Board of Governors of the Federal Reserve System (U.S.).
    2. Zsófia L. Bárány, 2017. "Taxation and self-employment," LIS Working papers 723, LIS Cross-National Data Center in Luxembourg.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simon C. Parker, 2003. "Does Tax Evasion Affect Occupational Choice?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(3), pages 379-394, July.
    2. Seppo Honkapohja & Erkki Koskela, 1999. "The economic crisis of the 1990s in Finland," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 14(29), pages 400-436.
    3. Marc van der Steeg & Roel van Elk & Dinand Webbink, 2012. "Does intensive coaching reduce school dropout?," CPB Discussion Paper 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Aronsson, Thomas & Wikström, Magnus, 2011. "Optimal Tax Progression: Does it Matter if Wage Bargaining is Centralized or Decentralized?," Umeå Economic Studies 829, Umeå University, Department of Economics.
    5. Schneider, Kerstin, 2005. "Union wage setting and progressive income taxation with heterogeneous labor: theory and evidence from the German income tax reforms 1986-1990," Labour Economics, Elsevier, vol. 12(2), pages 205-222, April.
    6. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Alain de Crombrugghe & Gregory de Walque, 2011. "Wage and employment effects of a wage norm : The Polish transition experience," Working Paper Research 209, National Bank of Belgium.
    8. Erkki Koskela & Ronnie Schöb, 2002. "Alleviating Unemployment: The Case for Green Tax Reforms," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 20, pages 355-378, Edward Elgar Publishing.
    9. Daniel Cardona & Fernando Sánchez-Losada, 2004. "The Unemployment Benefit System: a Redistributive or an Insurance Institution?," DEA Working Papers 8, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    10. Samuel Brazys & Krishna Chaitanya Vadlamannati, 2021. "Aid curse with Chinese characteristics? Chinese development flows and economic reforms," Public Choice, Springer, vol. 188(3), pages 407-430, September.
    11. Bertil Holmlund, 2002. "Labor Taxation in Search Equilibrium with Home Production," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 415-430, November.
    12. Hu, Juncheng, 2021. "Do facilitation payments affect earnings management? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 68(C).
    13. Hansen, Claus Thustrup & Pedersen, Lars Haagen & Slok, Torsten, 2000. "Ambiguous effects of tax progressivity -- theory and Danish evidence," Labour Economics, Elsevier, vol. 7(3), pages 335-347, May.
    14. Abonazel, Mohamed R., 2016. "Bias Correction Methods for Dynamic Panel Data Models with Fixed Effects," MPRA Paper 70628, University Library of Munich, Germany.
    15. Verbeek, Marno & Vella, Francis, 2005. "Estimating dynamic models from repeated cross-sections," Journal of Econometrics, Elsevier, vol. 127(1), pages 83-102, July.
    16. repec:wsr:wpaper:y:2010:i:057 is not listed on IDEAS
    17. Frank Kleibergen, 2004. "Expansions of GMM statistics that indicate their properties under weak and/or many instruments and the bootstrap," Econometric Society 2004 North American Summer Meetings 408, Econometric Society.
    18. Michał Brzoza-Brzezina & Jacek Kotłowski & Kamil Wierus, 2015. "Can interest rate spreads stabilize the euro area?," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3696-3709, July.
    19. Hoel, Michael, 1997. "Coordination of environmental policy for transboundary environmental problems?," Journal of Public Economics, Elsevier, vol. 66(2), pages 199-224, November.
    20. Blundell, Richard & Bond, Stephen, 2023. "Reprint of: Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 234(S), pages 38-55.
    21. Poncet, Sandra & Steingress, Walter & Vandenbussche, Hylke, 2010. "Financial constraints in China: Firm-level evidence," China Economic Review, Elsevier, vol. 21(3), pages 411-422, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:soecon:v:65:y:1999:i:4:p:757-773. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2325-8012 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.