Taxes and Entrepreneurial Activity: An Empirical Investigation Using Longitudinal Tax Return Data

摘要

The decision to start a business or engage in entrepreneurship depends in part on tax incentives. The U.S. income tax is a graduated tax, designed so that people pay an increasing percentage rate as their income rises through various tax brackets. The rate of tax paid on the highest dollars of income is the marginal tax rate. Currently, the tax code is largely blind to the source of income when one files a personal income tax statement. Historically, however, income from wages and salaries and income from entrepreneurial activities--running a business--were taxed differentially. This study explores the historical differences and subsequent standardization, largely stemming from the Tax Reform Act of 1986, to determine how marginal income tax rates affect an individual's decision to enter, remain in, and exit entrepreneurial activities.