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It is commonly argues that high tax rates motivates individuals to start a business as it is easier to avoid and evade taxes if self-employed compared to employed. If this is the case the authors would expect small business owners to be more responsive to tax rate changes than employees. This paper investigates how responsive existing small business owners are to tax rate changes by estimating the elasticities of taxable income, gross income and reported income from business ventures for small business owners and contrast them to corresponding elasticities for employees.
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