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A note on corporate taxation, limited liability, and asymmetric information

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  • A. Miglo

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Abstract

Becker and Fuest (forthcoming) provides a new explanation for the important and puzzling link between limited liability and corporate taxation. The authors argue that a corporate tax on all entrepreneurs with limited liability is optimal when entrepreneurs can offset potential losses and when asymmetric information exists regarding projects qualities. This note considers a model with slightly modified production technology. It confirms that entrepreneurs' abilities to offset losses and the existence of asymmetric information may affect government policy. However, it also shows that the optimal taxation policy differs from that in Becker and Fuest (forthcoming).

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File URL: http://hdl.handle.net/10.1007/s00712-007-0281-3
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Bibliographic Info

Article provided by Springer in its journal Journal of Economics.

Volume (Year): 92 (2007)
Issue (Month): 1 (September)
Pages: 11-19

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Handle: RePEc:kap:jeczfn:v:92:y:2007:i:1:p:11-19

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Web page: http://www.springerlink.com/link.asp?id=108909

Related research

Keywords: corporate taxation; limited liability; H21; H25;

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References

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  1. William G. Gale, 1988. "Federal Lending and the Market for Credit," UCLA Economics Working Papers 504, UCLA Department of Economics.
  2. Johannes Becker & Clemens Fuest, 2007. "Why is there Corporate Taxation? The Role of Limited Liability Revisited," Journal of Economics, Springer, vol. 92(1), pages 1-10, September.
  3. Bracoud, Frederique & Hillier, Brian, 2000. "Equity or Debt? Contracts in Markets with Asymmetric Information," Manchester School, University of Manchester, vol. 68(1), pages 1-23, January.
  4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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Cited by:
  1. Ralf Ewert & Rainer Niemann, 2010. "Limited Liability, Asymmetric Taxation, and Risk Taking - Why Partial Tax Neutralities can be Harmful," CESifo Working Paper Series 3301, CESifo Group Munich.

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