TY  - JOUR
AU  - Carroll,Robert
AU  - Holtz-Eakin,Douglas
AU  - Rider,Mark
AU  - Rosen,Harvey S.
TI  - Income Taxes and Entrepreneurs' Use of Labor
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6578
PY  - 2000
Y2  - May 2000
UR  - http://www.nber.org/papers/w6578
L1  - http://www.nber.org/papers/w6578.pdf
N1  - Author contact info:
Robert Carroll
Ernst & Young LLP
1101 New York Avenue, NW
Washington, DC  20005
Tel: 202-327-6032
Fax: 866-724-2443
E-Mail: carroll@american.edu

Douglas Holtz-Eakin
American Action Forum
1401 New York Ave, NW
Suite 1200
Washington, DC 20005
E-Mail: dholtzeakin@americanactionforum.org

Harvey S. Rosen
Department of Economics
Fisher Hall
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-4022
Fax: 609/258-6419
E-Mail: HSR@princeton.edu
AB  - This paper investigates the effect of entrepreneurs' personal income tax situations on their use of labor.  We analyze the income tax returns of a large number of sole proprietors before and after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax rates associated with that law affected their decisions to hire labor and the size of their wage bills.  We find that individual income taxes exert a statistically and quantitatively significant influence on the probability that an entrepreneur hires workers.  Raising the entrepreneur's  tax price' (one minus the marginal tax rate) by 10 percent raises the mean probability of hiring workers by about 12 percent.  Further, conditional on hiring employees, taxes also influence the total wage payments to those workers.  The elasticity of the median wage bill with respect to the tax price is about 0.37.
ER  -