Effectiveness of tax reform on entrepreneurship

Abstract

PurposeThe purpose of this paper is to investigate the effects of tax reform on entrepreneurship in South Africa using repeated cross-sectional data from the World Bank.Design/methodology/approachThe paper adopts a difference-in-difference estimation technique as well as contrasting periods before and after the tax reform. This contrast is achieved by examining individuals in the formal and informal sector and measuring the effectiveness of the reform on self-employment.FindingsThe results indicate that the tax reform had a positive and significant effect on the probability of becoming self-employed in South Africa and is robust across different econometric specifications.Originality/valueThe authors use individual-level data to measure the effectiveness of a tax reform policy on entrepreneurship. Utilizing the South African post-Apartheid tax reform as a natural experiment allows the authors to identify the effects of taxes on the choice of becoming self-employed.