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We examine the relative dynamic responses of state personal tax revenues and sales tax bases to changes in state personal income. Our econometric analysis, which includes separate analyses of long-run and short-run dynamics for each state, permits the estimation of asymmetric short-run responses depending upon the relationship between current and expected tax base growth. Results indicate that the average long-run elasticity for income taxes is more than double that for sales taxes. Most states have asymmetric short-run income elasticities, which are again greater for income taxes than for sales taxes. However, a joint analysis of long-and short-run dynamics reveals that neither tax is universally more volatile. After calculating state-specific income elasticities for both taxes, we employ cross-section regression techniques to explain the variation in elasticities across states. Several policy factors are found to be important, including elements of tax bases and rate structures.

Do taxes drive entrepreneurs out of business? This paper uses panel data on self-employed workers to examine whether differential income and payroll taxes affect their decisions to continue operating or to close their doors and take wage-and-salary jobs. I exploit statutory variations in the tax treatment of wage and self-employment income using data from the Panel Study of Income Dynamics. Taking into account the endogeneity of individuallevel tax rates, I find that higher relative marginal tax rates on self-employment income do not necessarily increase the probability of exit.

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Have tax policies affected entrepreneurial activity in the U.S.? We extend the time series literature on this topic by using more recent data and modern econometric techniques to examine the importance of federal income, payroll, capital gains, corporate income, and estate taxes on self-employment rates. Regression results show that most of these taxes have significant but small effects on self-employment activity. A battery of cointegration and causality tests confirms the general finding that taxes can have significant influences on entrepreneurship, but they are likely to be ineffective tools for generating meaningful changes in entrepreneurial activity. Copyright Springer 2006self-employment, tax policy, time series analysis, H2, J2,