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Risk, Self‐Employment and Differential Income Taxation
Author(s) -
Parker Simon C.
Publication year - 2001
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00231
Subject(s) - economics , differential (mechanical device) , preference , order (exchange) , labour economics , outcome (game theory) , microeconomics , finance , engineering , aerospace engineering
Previous research has identified non‐diversifiable risk and a preference for ‘being one’s own boss’ as key determinants of participation in self‐employment. Using a simple model of occupational choice, I show how both factors can cause efficiency losses in a free market economy, and how linear differential occupational taxation can improve on the market outcome. A simulation exercise calibrated with UK data advocates a tax premium on employment incomes and a tax cut for the self‐employed, in order to generate an efficiency gain of around a third of one per cent of GDP.