Taxes, the tax administrative burden and the entrepreneurial life cycle

We present a modified version of the entrepreneurial choice model, where it is shown that the expected utility of becoming an entrepreneur is decreasing in both the levels of taxes and the tax administrative burden. We extend previous empirical findings by examining how these variables influence ent...

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Bibliographic Details
Published in:Small business economics 2021-02, Vol.56 (2), p.681-694
Main Authors: Braunerhjelm, Pontus, Eklund, Johan E., Thulin, Per
Format: Article
Language:English
Subjects:
Business and Management
Decision making models
Economic models
Entrepreneurs
Entrepreneurship
Expected utility
Industrial Organization
Life cycle
Management
Microeconomics
Simplification
Tax administrative burden
Tax complexity
Tax revenues
Taxation
Taxes
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Summary:We present a modified version of the entrepreneurial choice model, where it is shown that the expected utility of becoming an entrepreneur is decreasing in both the levels of taxes and the tax administrative burden. We extend previous empirical findings by examining how these variables influence entrepreneurs at different stages in the entrepreneurial life cycle. Our findings imply that the effect of the tax administrative burden varies over the entrepreneurial life cycle from strongly negative to insignificant. The most pronounced negative effects appear in the early stages of entrepreneurship. We conclude that a 10% reduction in the tax administrative burden increases the propensity for new business establishments by 4%. Our findings support the idea that tax simplification is one way to encourage entrepreneurship, without any reduction in tax revenues.
ISSN:0921-898X
1573-0913
1573-0913
DOI:10.1007/s11187-019-00195-0