Progressive Taxation, Moral Hazard, and Entrepreneurship
This paper considers the general equilibrium and welfare effects of a linear progressive income tax with entrepreneurship and moral hazard. A competitive intermediation sector diversifies risk associated with entrepreneurial activity, but full risk consolidation is prevented by moral hazard. Since effort is not observable, risk bearing of entrepreneurs is required for incentive reasons. The extent of risk consolidation is endogenously explained. We find that a nonredistributive tax is neutral. A progressive tax always impairs entrepreneurship while the effect on welfare can be positive or zero, depending on the specification of moral hazard. Some results may also depend on the concrete formulation of preferences. Copyright 2004 Blackwell Publishing Inc..
Year of publication: |
2004
|
---|---|
Authors: | Keuschnigg, Christian ; Nielsen, Søren Bo |
Published in: |
Journal of Public Economic Theory. - Association for Public Economic Theory - APET, ISSN 1097-3923. - Vol. 6.2004, 3, p. 471-490
|
Publisher: |
Association for Public Economic Theory - APET |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Self-selection and advice in venture capital finance
Keuschnigg, Christian, (2007)
-
Housing markets and vacant land
Keuschnigg, Christian, (1994)
-
Public Policy for Venture Capital
Keuschnigg, Christian, (2001)
- More ...