Would a flat tax stimulate entrepreneurship in Germany? A behavioural microsimulation analysis allowing for risk

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 773

Classification and Topics

• Classification: Wirtschaft ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Labor Demand ; Entrepreneurship ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: Entrepreneurship ; income taxation, risk ; tax reform 2000 ; flat tax ; Einkommensteuer ; Steuerreform ; Flat Tax ; Steuerwirkung ; Unternehmer ; Selbstständige ; Risikoaversion ; Simulation ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fossen, Frank M.
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/27297
• Last update: 10.03.2025, 11:43 AM CET