While recent research has emphasized the desirability of studying effects of changes in marginal tax rates on taxable income, broadly defined, there has been comparatively little analysis of effects of marginal tax rate changes on entrepreneurial entry. This margin is likely to be important both because of the likely greater elasticity of entrepreneurial decisions with respect to tax changes (relative to decisions about hours worked) and because of recent research linking entrepreneurship, mobility, and household wealth accumulation. Previous work focuses on how marginal tax rates affect work incentives, incentives to take compensation in taxable forms, and reporting incentives. In addition, both the level and the progressivity of tax rates can affect decisions about risky activities. The tax system offers insurance for taking risk since taxes depend on outcomes; however, asymmetric taxes on different outcomes, such as progressive rates, may discourage risk taking. Using the Panel Study of Income Dynamics for 1978-1993, we incorporate both of these effects of the tax system in empirical estimations of the probability that people enter self employment. While the level of the marginal tax rate does not affect entry into self employment in a consistent manner across specifications, we find robust results that

This paper documents the interstate variation in capital gains taxation and examines the relation between the marginal tax rate on capital gains and aggregated state-level realizations between 1979 and 1990. Using state-level aggregated data, rather than data on individual taxpayers, alleviates the problem that the marginal tax rate is endogenous to the amount of capital gains realized. The estimated elasticity of realizations with respect to the tax rate is -0.65, smaller than that found by most researchers using panel data. This finding is robust to a variety of alternative specifications. Copyright 1995 by MIT Press.

In recent months, the governors of several states have suffered major political embarrassments because actual revenues fell, substantially short of the predictions in their respective budgets. Such episodes focus attention on the question of whether states do a good " job of forecasting revenues. In modern economics, forecasts are evaluated on the basis of whether or not they are rational " do the forecasts optimal] y incorporate all information that is available at the tune they are made? This paper dr:vel ops a method for testing the rat i.onal t.y of state revenue forecasts, and applies it. to the aria lysi s of data from New Jersey, Massachusetts, arid Maryland. (ne of our main findtri'i; u,; that in all three states, the I orerats of own revenues are yystematically biased dowriward