American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
A Risky Venture: Income Dynamics among Pass-Through Business Owners
American Economic Journal: Macroeconomics
vol. 15,
no. 1, January 2023
(pp. 444–74)
Abstract
We employ a large panel of US income tax returns for the period 1987–2018 to extensively characterize and quantify business income risk. Our findings show business income to be much riskier than labor income. Business income is less persistent and is characterized by higher tail risk. Furthermore, when compared to labor income, heterogeneity across households is less important in explaining the cross-sectional variation in business income, and within-household income variation is more important. Our results underscore the income risks business owners face and provide stylized facts and parameter estimates useful for quantitative macroeconomic models and policy analysis.Citation
DeBacker, Jason, Vasia Panousi, and Shanthi Ramnath. 2023. "A Risky Venture: Income Dynamics among Pass-Through Business Owners." American Economic Journal: Macroeconomics, 15 (1): 444–74. DOI: 10.1257/mac.20200134Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials
- K34 Tax Law
- L26 Entrepreneurship
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