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Lookup NU author(s): Dr Martin Robson, Professor Colin Wren
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The paper examines how the incentives for individuals to take up self-employment, rather than paid employment, are influenced by the marginal and average income tax rate. A model is developed in which an individual optimally chooses the supply of labor effort and the amount of tax to evade. Assuming that remuneration is more responsive to effort but that the opportunities for evasion are greater in self-employment, we find a negative relationship between self-employment and the marginal tax rate but a positive relationship with the average rate. This is supported by empirical evidence for 15 OECD countries over the 1980s.
Author(s): Robson MT, Wren C
Publication type: Article
Publication status: Published
Journal: Southern Economic Journal
Year: 1999
Volume: 65
Issue: 4
Pages: 757-773
Print publication date: 01/04/1999
ISSN (print): 0038-4038
ISSN (electronic):
Publisher: Southern Economic Association
URL: http://dx.doi.org/10.2307/1061274
DOI: 10.2307/1061274
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