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On the Effects of Redistribution on Growth and Entrepreneurial Risk-taking

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Abstract

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.

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Authors and Affiliations

  1. Macroeconomics Department,  , Königsworther Platz 1, 30167, Hannover, Germany

    Christiane Clemens

  2. Institute of Economics, 21332, Lüneburg, Germany

    Maik Heinemann

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  1. Christiane Clemens
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  2. Maik Heinemann
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Correspondence to Christiane Clemens.

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Clemens, C., Heinemann, M. On the Effects of Redistribution on Growth and Entrepreneurial Risk-taking. J Econ 88, 131–158 (2006). https://doi.org/10.1007/s00712-006-0191-9

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  • DOI: https://doi.org/10.1007/s00712-006-0191-9

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