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IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: I study the link between taxes and youth self-employment. I make use of a Swedish reform, implemented in 2007–09, which suddenly made the payroll tax and the self-employment tax vary by age. The results suggest that youth self-employment is insensitive to tax reductions, both in the short run and in the somewhat longer run. I also study the effect of the tax reductions on income. For those that are defined as self-employed, I find positive effects on income from self-employment, and negative effects on income from wage employment. This finding suggests that the lower taxes caused the self-employed to reallocate time from employment to self- employment.

Keywords: youth unemployment; self-employment tax; tax subsidy; self-employment

JEL-codes: H25; H32; J23; J38; J68

44 pages, March 1, 2016

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