Income taxes and entrepreneurs' use of labor

Robert Carroll, Douglas Holtz-Eakin, Mark Rider, Harvey S. Rosen

Research output: Contribution to journalArticlepeer-review

65 Scopus citations


We investigate the effect of entrepreneurs' personal taxes on their use of labor, analyze the tax returns of sole proprietors before and after the Tax Reform Act of 1986, and determine how the substantial reductions in marginal tax rates affected their hiring decisions and wage bills. Individual income taxes exert a statistically and quantitatively significant influence on the probability of hiring workers. Raising the entrepreneur's "tax price" by 10% raises the mean probability of hiring by about 12%. Further, taxes influence total wage payments to workers. The tax-price elasticity of the median wage bill is about .37.

Original languageEnglish (US)
Pages (from-to)324-351
Number of pages28
JournalJournal of Labor Economics
Issue number2
StatePublished - Apr 2000

All Science Journal Classification (ASJC) codes

  • Industrial relations
  • Economics and Econometrics


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