The Properties of Income Risk in Privately Held Businesses

50 Pages Posted: 1 Jan 2013

See all articles by Jason Matthew DeBacker

Jason Matthew DeBacker

University of South Carolina - Darla Moore School of Business

Bradley T. Heim

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Vasia Panousi

University of Montreal, Department of Economics

Shanthi Ramnath

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Ivan Vidangos

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2012

Abstract

Our paper represents the first attempt in the literature to estimate the properties of business income risk from privately held businesses in the US. Using a new, large, and confidential panel of US income tax returns for the period 1987-2009, we extensively document the empirical stylized facts about the evolution of various business income risk measures over time. We find that business income is much riskier than labor income, not only because of the probability of business exit, but also because of higher income fluctuations, conditional on no exit. We show that business income is less persistent, but is also characterized by higher probabilities of extreme upward transition, compared to labor income. Furthermore, the distribution of percent changes for business income is more dispersed than that for labor income, and it also indicates that business income faces substantially higher tail risks. Our results suggest that the high-income households are more likely to bear both the big positive and the big negative business income percent changes.

Keywords: business income, privately held businesses, business risk

JEL Classification: D11, D14, D31

Suggested Citation

DeBacker, Jason Matthew and Heim, Bradley T. and Panousi, Vasia and Ramnath, Shanthi and Vidangos, Ivan, The Properties of Income Risk in Privately Held Businesses (September 17, 2012). FEDS Working Paper No. 2012-69. Available at SSRN: https://ssrn.com/abstract=2195198 or http://dx.doi.org/10.2139/ssrn.2195198

Jason Matthew DeBacker

University of South Carolina - Darla Moore School of Business ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
United States

Bradley T. Heim

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Vasia Panousi (Contact Author)

University of Montreal, Department of Economics ( email )

C.P. 6128 succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

HOME PAGE: http://https://sites.google.com/site/panousi/

Shanthi Ramnath

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Ivan Vidangos

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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