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Essays on Self-Employment, Income Taxation, Non-Compete Agreements, and Sports Betting
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This dissertation consists of three essays on self-employment, income taxation, non-compete agreements, and sports betting. First two essays aim to measure the impact of economic incentives on entrepreneurs. I examine government interventions such as non-compete agreements (NCA) policy and taxation and their effects on entrepreneurial activity in the United States. Third essay examines the growth and variability of the novel tax base sports betting. First chapter splits self-employment, which has mostly been used as a proxy for entrepreneurship, into two different entrepreneur types with incorporated and unincorporated businesses. I examine how these two types differ in sensitivity to individual-specific marginal and average personal income tax rates in the US. I analyze the probability of becoming an incorporated or unincorporated self-employed worker by utilizing IV models. I use the Annual Social and Economic (ASEC) rotating panel data of the Current Population Survey (CPS) from 2005 to 2019 to track a paid employee's decision to become self-employed. My empirical findings show that reducing personal income tax rates increase overall self-employment activity. Higher personal income tax rates encourage incorporated entrepreneurship but discourage unincorporated entrepreneurship. These results imply that future research and tax policy should take into account that different types of entrepreneurs respond differently to tax incentives. Second chapter investigates how NCA policies affect different types of entrepreneurship with incorporated and unincorporated businesses. We exploit policy changes as quasi-experiments in Utah in 2016 and in Massachusetts in 2018. Both states decreased the enforceability of NCAs by limiting the duration of the NCAs to one year, and in addition, Massachusetts banned non-compete agreements for low-wage workers. We estimate the effects of the reforms on the probabilities of being either type of entrepreneur using Synthetic Control Methods and difference-in-differences regressions based on the American Community Survey (ACS) data. Our findings show that the decrease in the enforceability of NCAs in Massachusetts resulted in a higher rate of unincorporated entrepreneurship, while there was no sizable effect on the rate of incorporated entrepreneurship. For Utah, our results indicate that the reform increased both types of entrepreneurship. The findings imply that states can promote entrepreneurial activity by reducing the enforceability of NCAs, and the way of changing the enforceability of NCAs matters, as different provisions encourage different types of entrepreneurship in a given state. Third chapter examines Nevada’s gross sports revenue as an actual tax base in terms of growth and volatility. In May 2018, the US Supreme Court overturned the Professional and Amateur Sports Protection Act which limited gambling on sports to four states (Nevada, Delaware, Oregon, and Montana). Since the court’s decision, twenty five states have legalized sports betting, with nineteen of those having launched statewide sports wagering as of November 2020. The primary catalyst behind this legalization is the generation of tax revenue. What is the growth potential of sports betting? Will sports betting be a volatile or stable source of tax revenue? To address these questions, this paper examines sports betting revenue in Nevada from 1990 to 2019. Nevada provides a unique case study in that, prior to the Supreme Court decision, it was the only state to provide full-fledged sports betting and it is the only state that provides sufficient data for empirical analysis. Long-run (growth) and short-run (volatility) relationships between total sports gambling revenue and personal income are estimated using state-level gambling revenue and income. Estimates for individual sports (football, basketball, baseball, and racebook/horse races) are also provided. Inferences about the importance of online betting are made using data from New Jersey. This is the first study analyzing the growth and volatility of sports gambling revenues in the United States. We contribute to the broader literature that analyzes the growth and volatility of more traditional tax bases (i.e., sales tax, personal income tax, and casino gambling tax). Our findings suggest that sports gambling grows at a similar rate as state income and is stable and insensitive to short-run shocks to income. Sports betting revenue offers a long-term growth potential that is lower than the personal income tax elasticity but similar to casino gambling and sales tax. However, the amount of money retained by casinos from sports betting, and hence the state, is small compared to other traditional tax bases.