Tax Progressivity and Self-Employment Dynamics

Income Taxation and Self-Employment: The Impact of Progressivity in Countries with Tax Evasion

Recently several developing and transitional countries changed their personal income tax from fairly progressive to ‡at in an e¤ort to improve e¢ ciency. But how do taxes a¤ect incentives when people can sometimes tax evade and pay bribes? In this paper, I address this question by focusing on the e¤ects of personal income tax progressivity on the decision to become self-employed. I develop a th...

Tax Bunching , Income Shifting and Self - employment

This paper proposes a dynamic extension to Saez (2010) bunching formula that allows us to distinguish bunching based on real responses and income shifting. We provide direct evidence of income shifting and pronounced bunching in taxable income for the case of Danish self-employed. If income shifting was neglected in this case, we would conclude that taxable incomes were highly sensitive to chan...

Optimal Tax Progressivity: An Analytical Framework*

What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, progressivity reduces incentives to work and to invest in skills, and aggravates the externality associated with valued publi...

The Earned Income Tax Credit and Reported Self-Employment Income

The Earned Income Tax Credit subsidizes earnings from both the wage sector and the self-employment sector. This paper uses tax return data to investigate how the EITC affects the reporting of self-employment income to the IRS. A difference-in-difference strategy is used, considering three expansions in the EITC and comparing changes across filers with and without children. The expansions are pr...

Disabled and the Employment Tax