On the effects of redistribution on growth and entrepreneurial risk-taking

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This paper investigates the effects of redistributive taxation on occupational choice and growth. We discuss a two-sector economy in the spirit of Romer (1990). Agents engage in one of two alternative occupations: either self-employment in an intermediate goods sector characterized by monopolistic competition, or employment as an ordinary worker in this sector. Entrepreneurial profits are stochastic. The occupational choice under risk endogenizes the number of firms in the intermediate goods industry. While the presence of entrepreneurial risk results in a suboptimally low number of firms and depresses growth, nonlinear tax schemes can sometimes compensate negative effects by ex post providing social insurance.
Original languageEnglish
JournalJournal of Economics
Issue number2
Pages (from-to)131-158
Number of pages28
Publication statusPublished - 08.2006

    Research areas

  • Economics
  • Endogenous growth, Entrepreneurship, Occupational choice, OLG, Redistribution