Progressive Taxation, Moral Hazard, and Entrepreneurship
Journal
Journal of Public Economic Theory
ISSN
1097-3923
ISSN-Digital
1467-9779
Type
journal article
Date Issued
2004-08-01
Author(s)
Abstract
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.
Language
English
Keywords
Taxation
moral hazard
entrepreneurship.
HSG Classification
not classified
Refereed
No
Publisher
Blackwell
Publisher place
Malden, Mass.
Volume
6
Number
3
Start page
471
End page
490
Pages
20
Subject(s)
Eprints ID
2117
File(s)![Thumbnail Image]()
open.access
Name
JPET_2004.pdf
Size
132.14 KB
Format
Adobe PDF
Checksum (MD5)
72525f51dfbd60d43d9e6c8319dea65a