Analysis of the relationship between taxes and self-employment should account for the interplay between responses in self-employment and wage employment. We estimate a two-state multi-spell duration model which accounts for both observed and unobserved heterogeneity using a large longitudinal administrative dataset for Norway for 1993-2011. Our findings conform to theoretical predictions, and are robust to various changes to definitions and sample selections. A policy experiment simulating a flatter tax schedule in the year 2000, is found to encourage both entry into and exit from self-employment, with an increase of about 11.5 percent in net inflow into self-employment.
