Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27297
Authors: 
Fossen, Frank M.
Year of Publication: 
2008
Series/Report no.: 
DIW Discussion Papers 773
Abstract: 
When possible income tax reforms are debated, the suspected impact on entrepreneurship is often used as an argument in favour or against a certain policy. Quantitative ex-ante evaluations of the effect of certain tax reform options on entrepreneurship based on microeconometric research have not been provided by the literature, however. This paper estimates the ex-ante effects of the German tax reform 2000 and of two hypothetical flat tax scenarios on entries into and exits out of self-employment in Germany. For the estimation I apply a microsimulation model which is based on the tax-benefit model STSM and on structural microeconometric models of transitions into and out of self-employment. These structural models include an estimated parameter of risk aversion. The simulation results indicate that flatter tax systems do not encourage, but rather discourage people from choosing self-employment. This is explained by the reduction of entrepreneurs' income risk through progressive taxation.
Subjects: 
Entrepreneurship
income taxation, risk
tax reform 2000
flat tax
JEL: 
H24
J23
L26
D81
Document Type: 
Working Paper

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