Self-employment and the role of health insurance in the U.S.

•The U.S. is the only major industrialized country without universal health care.•The health care system in the U.S. may lead to so-called “entrepreneurship lock.”•A series of tax deductions had limited effects on exits from self-employment.•This was primarily the case for single and married men without spousal insurance.•The same tax deductions left the entry into self-employment largely unaffected.

We investigate the role of health insurance coverage in explaining transitions in and out of entrepreneurship in the U.S. We first consider the effect of individual coverage, along with that from a spouse, on the likelihood of entry and exit. Next, we examine the tax deductions granted to the self-employed through amendments made to the 1986 Tax Reform Act. Using the Current Population Surveys for 1996–2007, we find that while the increasingly generous tax deductions left entry decisions largely unaffected, they had limited effects on exits. Thus, the health care system in the U.S. may have implications for entrepreneurial activity.