Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27230
Authors: 
Fossen, Frank M.
Year of Publication: 
2007
Series/Report no.: 
DIW Discussion Papers 705
Abstract: 
Which role do individual income prospects play in the decision to be an entrepreneur rather than an employee? In a model of occupational choice, higher expected after-tax earnings attract people to self-employment, while more risky net earnings deter risk-averse individuals. In this paper I analyse the expected value and variance of income in self-employment and dependent employment empirically, accounting for selection. Based on this analysis, structural models of self-employment entry and exit under risk are estimated, which include a standard risk aversion parameter. The model predicts that the German income tax reduction of 2000 induced smaller exit rates out of self-employment for men and smaller entry rates for women.
Subjects: 
Entrepreneurship
Risk
Returns to Self-Employment
Taxation
JEL: 
J23
H24
D81
C51
Document Type: 
Working Paper

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