Does tax evasion affect occupational choice?

Abstract

This paper presents a novel micro-econometric procedure that identifies the extent to which occupational choices are distorted by opportunities for tax evasion. Previous studies claim to have found significant and substantial effects, but analysis and replication of their methods reveals that they generate conflicting and misleading results. The paper then implements the new procedure using several British micro-data sets. A thorough empirical investigation reveals that occupational choice between self-employment and paid employment is not robustly related to pecuniary factors in general, and is invariant to tax avoidance and evasion opportunities in particular.