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159th mBank-CASE Seminar Proceedings: Why do we need self-employed persons? Some economic reflections, mainly tax related ones

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1 May 2019

Fiscal Policies and Growth

mBank – CASE Seminar Proceedings

For many years, we have been hearing about the need for innovation and entrepreneurship. In Poland, successive governments declare their support for entrepreneurs and expand the catalog of privileges, mainly in terms of taxes and contributions. Discussions often equate the self-employed with entrepreneurs. In this study, we seek answers to the following questions: Who are the self-employed? Are they really entrepreneurs? Should their activities be supported, and how does the economy benefit from the self-employed? In this study, we point out that differences in self-employment rates between countries may result from differences in the taxation of work performed by the self-employed and salaried employees. In the main part of the study, using the EUROMOD microsimulation model for tax and benefit calculations, we show that there is no single model for taxing work carried out as a self-employed activity in Europe. In most of the contribution and tax systems studied, the profitability of employment or self-employment changes with changes in income. Due to the regressivity of the tax burden on the self-employed, it generally only becomes profitable above a certain income level. In the first part of the study, we define a self-employed person as someone who runs a business, and then we distinguish within this group entrepreneurs, i.e., those who take risks and create innovations. Discussing the advantages and disadvantages of self-employment from the perspective of the self-employed and the employer, we draw attention to the advantages—including systemic ones (tax and contribution-related)—outweigh the disadvantages. We also discuss income taxation of the self-employed in more detail. In the second part, we present changes in self-employment rates over the last 25 years. We use data from the World Bank and individual data from the European Union Statistics on Income and Living Conditions (EU-SILC). Thanks to these data, we can observe how the links between the self-employed and the economy are changing—the importance of services provided to business entities is growing. We can also see that the importance of self-employment is declining. In Poland, the level of self-employment (non-agricultural) is low. The dynamics of self-employment rates indicate that legal regulations have a secondary impact on the scale of self-employment. It seems that technological and demographic factors are much more important in this case.

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159th mBank-CASE Seminar Proceedings: Why do we need self-employed persons? Some economic reflections, mainly tax related ones

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