Resource title

Redistribution and occupational choice in a Schumpeterian growth model

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Resource description

We consider an R&D-driven endogenous growth model in which innovation is risky and agents are risk averse. Growth is determined by the occupational choice of agents who can either work in production for a wage or become entrepreneurs. In this context, we examine the impact of redistributive taxation and compute socially optimal tax rates. Redistribution acts as social insurance, thus encouraging innovation and accelerating growth. The general equilibrium effects of the reallocation of labour induced by taxation can offset the direct distributive impact of taxes and result in a Pareto improvement. Optimal tax rates are a humpshaped function of the intertemporal spillover effect.

Resource author

Cecilia Garcίa-Peñalosa, Jean-François Wen

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18688

Resource license

Adapt according to the presented license agreement and reference the original author.