The Wealth Tax and Entrepreneurial Activity

Abstract

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.

The impact of minimum taxation by an imputable wealth tax on capital budgeting and business strategy of German companies

“…the seminal paper by Stiglitz (1969). Hansson (2006) finds some evidence for a wealth tax influencing entrepreneurship negatively).…”

“…Wijnbergen and Estache (1999) assume a minimum asset tax and Dye et al (2001) analyze empirically the impact of property taxes on business activities. Hansson (2006) identifies perceptible small impact of wealth tax abolishment on entrepreneurial activity in a natural experiment. 5 A recent analysis on the impact of loss offset limitation and asymmetric taxation on corporate investment decisions is provided by, e.g., Feenberg and Poterba (2003).…”

Taxation and entrepreneurship in a welfare state

“…28 See Hansson (2008a) for an analysis of the effect of the abolition of the wealth tax on the rate of selfemployment in some Western countries.…”

Investment Effects of Wealth Taxes Under Uncertainty and Irreversibility

“…In line with that result Allee, Lynch, Petroni, and Schroeder (2015) …nd signi…cant sensitivities of petroleum re…neries in their crude oil inventories when they experience a personal property tax. Hansson (2008) analyzes the abolishment or suspension of general wealth taxation in Austria in 1994, in Denmark in 1997, in Germany in 1997, and in the Netherlands in 2001 empirically using a simple model of the choice between becoming an entrepreneur or an employee. She …nds a perceptible but only small impact of wealth tax abolishment on entrepreneurial activity.…”