Tax Progressivity and Entrepreneurial Dynamics
Abstract
:1. Introduction
2. Theory and Hypotheses
2.1. Tax Progressivity
2.2. Tax Rates
3. Data and Methodology
3.1. Data and Sample
3.2. Dependent Variable
3.3. Independent Variables
3.4. Control Variables
3.4.1. Income
3.4.2. Start-Up Costs
3.4.3. Credit Information
3.4.4. Education
3.4.5. Risk
3.4.6. Subsidies
3.4.7. Inflation
3.5. Model Specification
3.6. Robustness Strategy
4. Results
Dynamic Panel System GMM Baseline Model Results.
5. Discussion and Concluding Remarks
Author Contributions
Funding
Conflicts of Interest
References
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Variable | Variable Description | Mean | SD | Min | Max | Source |
---|---|---|---|---|---|---|
Dependent Variable | ||||||
Transition Ratio (Tran Ratio) | The transition ratio is calculated by dividing the proportion of new business owners by the proportion of nascent entrepreneurs in the previous year. | 0.44 | 0.25 | 0.00 | 1.42 | (1) |
Independent Variables | ||||||
Downside Progressivity (DownProgressM) | Downside progressivity (with subscript M) is calculated as the difference between tax rates at 100% and 67% of average earnings using marginal tax rates. | 3.40 | 5.77 | −6.49 | 20.00 | (2) |
Upside Progressivity (UpProgressM) | Upside progressivity (with subscript M) is calculated as the difference between tax rates at 167% and 100% of average earnings using marginal tax rates. | 6.39 | 7.17 | −12.68 | 23.80 | (2) |
Downside Progressivity (DownProgressA) | Downside progressivity (with subscript A) is calculated as the difference between tax rates at 100% and 67% of average earnings using average tax rates. | 3.97 | 1.78 | 0.56 | 7.98 | (2) |
Upside Progressivity (UpProgressA) | Upside progressivity (with subscript A) is calculated as the difference between tax rates at 167% and 100% of average earnings using average tax rates. | 6.42 | 2.31 | 2.85 | 12.64 | (2) |
Tax67M | Net personal marginal tax rates of single workers with no children at 67% of average earnings. | 35.90 | 9.28 | 18.75 | 61.41 | (2) |
Tax100M | Net personal marginal tax rates of single workers with no children at 100% of average earnings. | 39.31 | 9.72 | 22.88 | 59.91 | (2) |
Tax167M | Net personal marginal tax rates of single workers with no children at 167% of average earnings. | 45.69 | 9.43 | 26.95 | 62.28 | (2) |
Tax67A | Net personal average tax rates of single workers with no children at 67% of average earnings. | 24.84 | 7.15 | 5.89 | 37.00 | (2) |
Tax100A | Net personal average tax rates of single workers with no children at 100% of average earnings. | 28.82 | 7.22 | 13.87 | 43.37 | (2) |
Tax167A | Net personal average tax rates of single workers with no children at 167% of average earnings. | 35.24 | 7.61 | 21.68 | 50.00 | (2) |
Control Variables | ||||||
Income | GDP per capita, in log. | 10.59 | 0.18 | 10.10 | 11.08 | (3) |
Start-Up Cost (Start Cost) | Cost of business start-up procedures (% of GNI per capita) | 5.87 | 6.23 | 0.00 | 22.80 | (3) |
Risk | Investment Risk (0 = very low to 6 = very high) | 5.41 | 0.68 | 3.17 | 6.00 | (4) |
Tertiary Education (Education) | School enrollment, tertiary (% gross) | 67.58 | 12.51 | 49.79 | 97.94 | (3) |
Credit Information (Credit Info) | Depth of credit information index (0 = low to 8 = high) | 6.43 | 1.11 | 4.00 | 8.00 | (3) |
Inflation | Inflation, GDP deflator (annual%) | 2.46 | 1.88 | −1.69 | 8.78 | (3) |
Subsidies | Subsidies and other transfers (% of expense) | 55.56 | 16.75 | 15.87 | 81.24 | (3) |
Australia | Germany | Norway |
Belgium | Iceland | Slovenia |
Canada | Ireland | Spain |
Denmark | Italy | Sweden |
Finland | Japan | UK |
France | Netherlands | USA |
Variables | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | (11) | (12) | (13) | (14) | (15) | (16) | (17) | (18) |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1. Tran Ratio | 1.00 | |||||||||||||||||
2. DownProgressM | 0.04 | 1.00 | ||||||||||||||||
3. UpProgressM | 0.15 | −0.38 * | 1.00 | |||||||||||||||
4. DownProgressA | −0.26 * | −0.09 | −0.14 | 1.00 | ||||||||||||||
5. UpProgressA | 0.03 | 0.03 | 0.58 * | 0.34 * | 1.00 | |||||||||||||
6. Tax67M | −0.30 * | −0.23 * | −0.19 | 0.36 * | 0.10 | 1.00 | ||||||||||||
7. Tax100M | −0.26 * | 0.37 * | −0.41 * | 0.29 * | 0.12 | 0.82 * | 1.00 | |||||||||||
8. Tax167M | −0.16 | 0.10 | 0.34 * | 0.20 * | 0.56 * | 0.69 * | 0.72 * | 1.00 | ||||||||||
9. Tax67A | −0.24 * | 0.14 | −0.20 * | −0.09 | −0.07 | 0.79 * | 0.84 * | 0.71 * | 1.00 | |||||||||
10. Tax100A | −0.30 * | 0.12 | −0.23 * | 0.16 | 0.02 | 0.87 * | 0.90 * | 0.76 * | 0.97 * | 1.00 | ||||||||
11. Tax167A | −0.28 * | 0.12 | −0.04 | 0.26 * | 0.32 * | 0.86 * | 0.89 * | 0.89 * | 0.90 * | 0.95 * | 1.00 | |||||||
12. Income | 0.03 | 0.02 | 0.15 | 0.01 | 0.34 * | 0.05 | 0.06 | 0.18 | −0.04 | −0.04 | 0.07 | 1.00 | ||||||
13. Start Cost | 0.03 | −0.13 | −0.18 | 0.14 | −0.12 | 0.11 | 0.03 | −0.11 | −0.07 | −0.04 | −0.07 | −0.41 * | 1.00 | |||||
14. Risk | 0.00 | 0.01 | 0.08 | −0.03 | 0.08 | 0.05 | 0.05 | 0.11 | 0.08 | 0.07 | 0.09 | 0.05 | 0.00 | 1.00 | ||||
15. Education | 0.06 | 0.18 | 0.23 * | −0.07 | 0.25 * | 0.03 | 0.13 | 0.31 * | 0.13 | 0.11 | 0.18 | 0.18 | −0.31 * | 0.03 | 1.00 | |||
16. Credit Info | 0.10 | −0.21 * | −0.16 | 0.10 | −0.19 | −0.27 * | −0.38 * | −0.51 * | −0.44 * | −0.41 * | −0.44 * | 0.23 * | −0.14 | 0.00 | −0.20 * | 1.00 | ||
17. Inflation | −0.11 | 0.00 | 0.00 | 0.07 | 0.06 | 0.03 | 0.03 | 0.03 | −0.04 | −0.02 | 0.00 | 0.10 | 0.11 | 0.07 | 0.16 | 0.03 | 1.00 | |
18. Subsidies | 0.13 | −0.14 | −0.33 * | −0.08 | −0.34 * | 0.25 * | 0.16 | −0.08 | 0.14 | 0.12 | 0.01 | 0.01 | 0.11 | 0.04 | −0.06 | −0.01 | −0.17 | 1.00 |
Marginal Tax Rates | Average Tax Rates | |||
---|---|---|---|---|
Specification | 1 | 2 | 3 | 4 |
Downside | Upside | Downside | Upside | |
Progressivity | Progressivity | Progressivity | Progressivity | |
Tax Progressivity | 0.028 ** | −0.002 | −0.008 | −0.013 |
(0.012) | (0.015) | (0.080) | (0.052) | |
Tax Rate | −0.013 | 0.018 | 0.057 | 0.004 |
(0.011) | (0.040) | (0.287) | (0.042) | |
Transition Ratiot = −1 | 0.306 ** | 0.128 | 0.217 | 0.146 |
(0.150) | (0.190) | (0.476) | (0.254) | |
Observations | 84 | 84 | 84 | 84 |
Number of countries | 18 | 18 | 18 | 18 |
Number of instruments | 8 | 8 | 8 | 8 |
Wald χ2 | 11.376 ** | 2.694 | 1.442 | 0.966 |
AR(1) (p-value) | 0.024 | 0.070 | 0.260 | 0.126 |
AR(2) (p-value) | 0.186 | 0.190 | 0.359 | 0.221 |
Hansen J-test | 0.314 | 1.698 | 2.152 | 4.216 |
Hansen (p-value) | 0.957 | 0.637 | 0.541 | 0.239 |
Marginal Tax Rates | Average Tax Rates | |||
---|---|---|---|---|
Specification | 5 | 6 | 7 | 8 |
Downside | Upside | Downside | Upside | |
Progressivity | Progressivity | Progressivity | Progressivity | |
Tax Progressivity | 0.036 *** | −0.009 | −0.006 | −0.028 |
(0.014) | (0.015) | (0.022) | (0.032) | |
Tax Rate | −0.016 | 0.015 | 0.024 | 0.002 |
(0.016) | (0.047) | (0.028) | (0.014) | |
Log(Income) | 0.804 | −0.519 | 0.065 | −0.393 |
(1.092) | (1.416) | (0.686) | (0.762) | |
Start–Up Cost | 0.002 | 0.005 | −0.003 | 0.004 |
(0.014) | (0.026) | (0.035) | (0.020) | |
Credit Information | −0.041 | 0.101 | 0.046 | 0.037 |
(0.085) | (0.248) | (0.111) | (0.060) | |
Tertiary Education | −0.003 | 0.002 | −0.001 | 0.004 |
(0.005) | (0.010) | (0.008) | (0.004) | |
Transition Ratiot = −1 | 0.530 ** | 0.235 | 0.303 | 0.208 |
(0.259) | (0.190) | (0.387) | (0.335) | |
Observations | 84 | 84 | 84 | 84 |
Number of countries | 18 | 18 | 18 | 18 |
Number of instruments | 14 | 14 | 14 | 14 |
Wald χ2 | 81.213 *** | 17.893 ** | 15.540 ** | 29.145 *** |
AR(1) (p-value) | 0.031 | 0.090 | 0.239 | 0.229 |
AR(2) (p-value) | 0.595 | 0.361 | 0.477 | 0.401 |
Hansen J-test | 1.644 | 7.680 | 6.534 | 5.148 |
Hansen (p-value) | 0.896 | 0.175 | 0.258 | 0.398 |
Marginal Tax Rates | Average Tax Rates | |||
---|---|---|---|---|
Specification | 9 | 10 | 11 | 12 |
Downside | Upside | Downside | Upside | |
Progressivity | Progressivity | Progressivity | Progressivity | |
Tax Progressivity | 0.028 *** | −0.005 | −0.008 | −0.037 |
(0.009) | (0.012) | (0.027) | (0.071) | |
Tax Rate | −0.015 * | 0.000 | 0.021 | 0.015 |
(0.009) | (0.042) | (0.040) | (0.015) | |
Log(Income) | 4.104 | 29.820 * | 21.135 | 54.587 |
(3.378) | (16.476) | (16.272) | (70.867) | |
Log(Income)2 | −0.182 | −1.395* | −0.987 | −2.563 |
(0.165) | (0.775) | (0.768) | (3.331) | |
Start–Up Cost | 0.002 | 0.008 | 0.009 | 0.012 |
(0.009) | (0.021) | (0.028) | (0.032) | |
Credit Information | −0.022 | −0.013 | 0.038 | −0.02 |
(0.028) | (0.245) | (0.159) | (0.196) | |
Tertiary Education | 0.000 | 0.004 | 0.002 | 0.003 |
(0.003) | (0.009) | (0.007) | (0.010) | |
Risk | 0.030 | 0.000 | −0.013 | 0.016 |
(0.032) | (0.051) | (0.031) | (0.044) | |
Transition Ratiot = −1 | 0.451 *** | 0.132 | 0.273 | 0.108 |
(0.123) | (0.145) | (0.561) | (0.477) | |
Observations | 84 | 84 | 84 | 84 |
Number of countries | 18 | 18 | 18 | 18 |
Number of instruments | 17 | 17 | 17 | 17 |
Wald χ2 | 1799.336 *** | 44.008 *** | 61.573 *** | 39.282 *** |
AR(1) (p-value) | 0.031 | 0.078 | 0.384 | 0.484 |
AR(2) (p-value) | 0.514 | 0.297 | 0.542 | 0.357 |
Hansen J-test | 5.157 | 7.670 | 8.153 | 15.622 |
Hansen (p-value) | 0.524 | 0.263 | 0.227 | 0.016 |
Marginal Tax Rates | Average Tax Rates | |||
---|---|---|---|---|
Specification | 13 | 14 | 15 | 16 |
Downside | Upside | Downside | Upside | |
Progressivity | Progressivity | Progressivity | Progressivity | |
Tax Progressivity | 0.027 *** | −0.003 | −0.013 | 0.006 |
(0.008) | (0.016) | (0.016) | (0.022) | |
Tax Rate | −0.015 * | −0.010 | −0.013 | 0.002 |
(0.008) | (0.035) | (0.027) | (0.022) | |
Log (Income) | 0.449 | −0.915 | −0.434 | −1.078 |
(1.131) | (1.626) | (0.749) | (0.807) | |
Start–Up Cost | 0.003 | 0.013 | 0.010 | −0.003 |
(0.011) | (0.013) | (0.008) | (0.014) | |
Subsidies | 0.007 | 0.010 | 0.010 | 0.011 ** |
(0.006) | (0.014) | (0.008) | (0.005) | |
Credit Information | −0.033 | 0.014 | 0.010 | 0.060 |
(0.059) | (0.228) | (0.050) | (0.087) | |
Tertiary Education | −0.001 | 0.007 | 0.005 | 0.004 |
(0.006) | (0.011) | (0.004) | (0.004) | |
Inflation | −0.020 | 0.016 | 0.002 | 0.022 |
(0.042) | (0.065) | (0.032) | (0.032) | |
Transition Ratiot = −1 | 0.382 ** | 0.164 | 0.229 | 0.215 |
(0.159) | (0.132) | (0.166) | (0.138) | |
Observations | 84 | 84 | 84 | 84 |
Number of countries | 18 | 18 | 18 | 18 |
Number of instruments | 17 | 17 | 17 | 17 |
Wald χ2 | 90.747 *** | 98.717 *** | 41.073 *** | 564.475 *** |
AR(1) (p-value) | 0.037 | 0.028 | 0.074 | 0.097 |
AR(2) (p-value) | 0.249 | 0.353 | 0.316 | 0.388 |
Hansen J-test | 3.169 | 7.170 | 5.904 | 3.783 |
Hansen (p-value) | 0.787 | 0.305 | 0.434 | 0.706 |
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Nadirov, O.; Dehning, B. Tax Progressivity and Entrepreneurial Dynamics. Sustainability 2020, 12, 3584. https://doi.org/10.3390/su12093584
Nadirov O, Dehning B. Tax Progressivity and Entrepreneurial Dynamics. Sustainability. 2020; 12(9):3584. https://doi.org/10.3390/su12093584
Chicago/Turabian StyleNadirov, Orkhan, and Bruce Dehning. 2020. "Tax Progressivity and Entrepreneurial Dynamics" Sustainability 12, no. 9: 3584. https://doi.org/10.3390/su12093584