Risky earnings, taxation and entrepreneurial choice: a microeconometric model for Germany

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 705

Classification and Topics

• Classification: Wirtschaft ; Labor Demand ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Criteria for Decision-Making under Risk and Uncertainty ; Model Construction and Estimation
• Subject: Entrepreneurship ; Risk ; Returns to Self-Employment ; Taxation ; Berufswahl ; Unternehmer ; Einkommen ; Risiko ; Einkommensteuer ; Mikroökonometrie ; Schätzung ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fossen, Frank M.
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/27230
• Last update: 10.03.2025, 11:44 AM CET