Tax Structure and Entrepreneurship

Using macro-level panel data, we examine the effects of taxation and tax progressivity on entrepreneurship in a large group of European countries. We address two main objectives. First, we try to explore whether tax increases discourage entrepreneurial activity, distinguishing between the effects on existing self-employment and new self-employment (nascent entrepreneurship). Second, we investigate the impact of tax progressivity on entrepreneurship, focusing in particular on the impact on new self-employment. We find that tax progressivity at higher-than-average incomes has a robust negative effect on nascent entrepreneurship. We discuss on the policy implications of our results.