This project involves empirical investigation of a number of issues pertaining to self-employment in three broad areas. The first involves tax policy and small business. Taxes affect the entire life-cycle of an entrepreneurial venture: the initial choice to pursue self-employment, the entrepreneurial firm's mix of inputs, its growth over time, and whether and how it is transferred to new owners. How federal tax policy affects entrepreneurs' choices of labor and capital inputs is investigated, taking advantage of the changes induced by the Tax Reform Act of 1986. The next topic is taxes and transitions to self-employment; how do taxes affect the likelihood that an individual will become self-employed? The estate tax, an issue that has recently received a great deal of attention among small businesses, is also considered. Opponents of the estate tax claim that it forces liquidation of family businesses. To the extent that this claim is true, the desire to avoid such a forced sale may significantly distort business decisions. The impact of the estate tax on individually owned businesses is analyzed. The second area of study involves risk and entrepreneurship. A basic fact about self-employment is that it is riskier than wage-earning. It is well documented that the earnings of the self-employed are highly variable, but the modern literature on consumption suggests that this is not the most meaningful measure of risk. This issue is analyzed within the framework of the theory of consumption risk. Another source of risk is change in regulatory circumstances, particularly environmental regulation. How the incidence of self-employment across states is affected by differences in environmental standards is also examined. Finally, the financing of small businesses is analyzed, with an emphasis on how the riskiness of an enterprise affects the way in which its financing is obtained. The third area of study is the demographic aspects of self-employment. Here the focus is on how experience with self-employment affects the welfare of particular subgroups in the population like blacks, women, and the elderly. Particular interest is aimed at determining the extent to which experience with self employment affects earnings mobility. Is self-employment a sensible strategy for improving the economic circumstances of blacks and women? How family background affects one's propensity to become self-employed, and how the impacts of family background differ by race and gender is analyzed. In the context of older individuals' decisions, a particularly important issue is the effect of health insurance on the decision to make a transition to self-employment. Lastly, comparable data from the United States, Britain and Germany are used to examine the extent to which tendencies found in the U.S. data are also observed in other countries.
