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|Title:||Income Taxes and Entrepreneurs' Use of Labor|
Rosen, Harvey S.
|Citation:||Journal of Labor Economics, Vol. 18, No. 2 ,April, 2000|
|Series/Report no.:||Working Papers (Princeton University. Industrial Relations Section) ; 373|
|Abstract:||This paper investigates the effect of entrepreneurs’ personal income tax situations on their use of labor. We analyze the income tax returns of a large number of sole proprietors before and after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax rates associated with that law affected their decisions to hire labor and the size of their wage bills. We ﬁnd that individual income taxes exert a statistically and quantitatively signiﬁcant influence on the probability that an entrepreneur hires workers. A 6 percentage point reduction in the marginal tax rate of an entrepreneur in the 39.6 percent bracket induces an approximately 1 1.8 percent increase in the probability that he hires labor. Further, conditional on hiring employees, taxes also inﬂuence the total wage payments to those workers. The elasticity of the median wage bill with respect to the marginal tax rate is about 0.397.|
|Appears in Collections:||IRS Working Papers|
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