Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269183 
Year of Publication: 
2022
Series/Report no.: 
IFN Working Paper No. 1429
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
The institutional literature suggests that long-term tax incentives are crucial for entrepreneurs, but studies on this topic are hampered by theoretical and empirical problems related to how to define and measure entrepreneurial income. We resolve these problems by drawing on a theoretical definition of the entrepreneur as an owner, which enables us to identify entrepreneurship empirically by means of investments made by active owners of closely held firms. Using detailed Swedish tax data, we analyze the tax incentives for such owner-entrepreneur investments from 1862 to 2018, thereby highlighting the evolution of a general institutional phenomenon through a long-run, in-depth, country-specific analysis. We calculate the annual marginal effective tax rate (METR) on capital income for investments, distinguishing between average- and top-income entrepreneurs, and between three sources of finance. We identify five tax regimes that indicate substantial differences in institutional quality over time according to the magnitude of the METR and METR differences between average- and top-income entrepreneurs and across sources of finance. Increased taxation of owner-entrepreneurs helps explain the absence of new large entrepreneurial firms in Sweden after World War II, while improved incentives can be associated with Sweden's recent entrepreneurial renaissance.
Subjects: 
High-Impact Entrepreneurship
Institutional Quality
Marginal Effective Tax Rates
Tax Regimes
Tax Reforms
JEL: 
L25
L26
H21
H31
H32
N44
Document Type: 
Working Paper

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