Occupational Licensure and Entrepreneurs: The Case of Tax Preparers in the United States

43 Pages Posted: 10 May 2018 Last revised: 28 Apr 2019

See all articles by Kyle Albert

Kyle Albert

Harvard University

Roman V. Galperin

Johns Hopkins University - Carey Business School

Aleksandra Kacperczyk

Massachusetts Institute of Technology (MIT); London Business School

Date Written: April 25, 2019

Abstract

The authors examine the relationship between entrepreneurship and occupational licensure using data on the universe of more than 700,000 tax preparers in the United States. Prior research suggested that occupational licensure has negative effects on entrepreneurship because it increases the costs of operating a business. By contrast, the authors argue that licensure may allow entrepreneurs to signal quality and enhance their legitimacy. States that require tax preparers to be licensed have higher average rates of entrepreneurship—approximated by tax practice ownership—and, in high-income ZIP codes, more demand for paid preparer services. In the analysis of the introduction of a federal license requirement in tax preparation in 2013, voluntary early adoption of the license by preparers predicts higher chances of survival in the industry. Entrepreneurs are less likely to adopt the license early than are non-entrepreneurs, unless they lack other state-level credentials. Results thus suggest that licensure represents a trade-off for entrepreneurs between the costs of obtaining a license and the benefits of signaling quality and legitimacy.

Keywords: Occupational licensure, Entrepreneurship, Labor markets

JEL Classification: J44, K34

Suggested Citation

Albert, Kyle and Galperin, Roman V. and Kacperczyk, Aleksandra, Occupational Licensure and Entrepreneurs: The Case of Tax Preparers in the United States (April 25, 2019). Johns Hopkins Carey Business School Research Paper No. 18-08. Available at SSRN: https://ssrn.com/abstract=3176815 or http://dx.doi.org/10.2139/ssrn.3176815

Kyle Albert

Harvard University ( email )

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HOME PAGE: http://www.kylealbert.net

Roman V. Galperin (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
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Aleksandra Kacperczyk

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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