Work

Income Taxation and Hours Worked in Different Types of Entrepreneurship

Year: 2025

Type: article

Abstract: We investigate the effect of changes in personal income tax (PIT) rates on the hours worked by entrepreneurs. Using rotating panel data from the U.S. March Current Population Survey spanning 2003–2019, we estimate instrumental variable regressions in first differences to exploit tax code changes for identification. We distinguish between self-employed owners of incorporated and unincorporated businesses. The findings reveal that higher PIT rates increase the hours worked among incorporated entrepreneurs, potentially due to tax avoidance strategies. We do not find a significant response to PIT rates among unincorporated entrepreneurs.

Source: The B E Journal of Economic Analysis & Policy

DOI: 10.1515/bejeap-2025-0082

Authors: Ege Can, Frank M. Fossen

Institutions: University of Alabama in Huntsville, University of Nevada, Reno, IZA - Institute of Labor Economics, University of California, Berkeley

Language: English

Topic: Economic and Fiscal Studies

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $2,712