Explaining International Variations in Self‐Employment: Evidence from a Panel of OECD Countries

Abstract

Organisation for Economic Cooperation and Development (OECD) data from 1972 to 1996 reveals substantial differences in the levels and trends of self‐employment rates across countries. This article uses recently developed panel integration and cointegration techniques to explore the determinants of aggregate self‐employment rates. We find that within the panel, self‐employment rates are positively and significantly related to personal income tax rates and negatively and significantly related to the unemployment benefit replacement rate. This accords a central role to government tax and transfer policies, in contrast to nonrobust influences from macroeconomic variables, which have been widely used in previous studies.