The Impact of Tax Incentives on the Economic Activity of Entrepreneurs / Jarkko Harju, Tuomas Kosonen.

Format:

Book

Author/Creator:

Harju, Jarkko.

Contributor:

National Bureau of Economic Research.

Kosonen, Tuomas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18442.

NBER working paper series no. w18442

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

Based on existing evidence, we know little about how the taxation of small business owners affects their economic activity. This paper studies the effect of two Finnish tax reforms, in 1997 and 1998, on the effort decisions of the owners of small businesses utilizing both theoretical model and empirical data. The reforms reduced the income tax rates of small business owners and applied only to unincorporated firms, leaving corporations out. We use a difference-in-differences strategy to estimate the causal impact of tax incentives on the economic activity of small businesses. The results imply that lighter taxation leads to an increase in the turnover of firms that we interpret as an increase in effort exerted by their owners.

Notes:

Print version record

October 2012.