This paper examines the relationship between income taxes and the decision to become self-employed using data from Sweden. By making it possible to track a large number of individuals over extended time periods and across a number of tax rate changes while controlling for important additional determinants, available tax-return information from Sweden allows for statistical estimation of the influence that income taxes have on the probability of becoming self-employed. The changing tax rate structure combined with the fact that the Swedish tax system does not provide additional tax benefits to small-business entrepreneurs compared with those who work as employees provides a powerful setting through which to examine the tax rate structure's influence on individuals' choice to become selfemployed. Contrary to many earlier studies based on US data, this paper finds that both average and marginal taxes have a negative impact on the decision to become self-employed.

Tax reform, Elasticity of taxable income, Deadweight loss,

Entrepreneurship is often credited with generating important positive economic externalities, such as promoting innovation, discovering new markets and serving as a mechanism for knowledge spill-over. Governments increasingly view encouragement of entrepreneurship as an important policy objective. Economists have found taxation as an important determinant of entrepreneurship, particularly income tax and capital gains tax. One form of taxation that has not been considered so far is the wealth tax. The wealth tax is likely to influence entrepreneurship negatively by affecting the pool of capital available for start-up businesses as well as reducing the net return to successful entrepreneurs. This article illustrates the impact of wealth tax on entrepreneurship using a simple model of the choice between becoming an entrepreneur or an employee. Actual data are then used to investigate whether the wealth tax indeed has a measurable effect on self-employment in Organisation for Economic Cooperation and Development (OECD) countries. A differences-in-differences type estimator using the abolition of the wealth tax as a ‘natural experi-ment’ points to a consistent pattern of perceptible, but small impact.

This paper uses panel data on bilateral FDI flows in the European Union to empirically analyze the impact of labor and corporate taxations on FDI decisions. While the effect of corporate taxes on FDI is well documented, the impact of labor taxes on FDI has been neglected. This is surprising since labor taxation may influence FDI as well. The reason for this is that taxation of labor affects the production cost and the ability to attract and retain productive labor and ultimately the investment return. By employing a Heckman two-step estimation model, which controls for possible sample selection bias due to many zero bilateral observations, it is found that labor taxes do influence FDI decisions. The effect is significant both statistically and economically, although the magnitude is smaller than for corporate tax.