Entrepreneurship, Wealth Inequality, and Taxation
AbstractThis paper investigates the importance of entrepreneurship when quantifying the aggregate and distributional effects of switching from a progressive to a proportional income tax system. I find that the distributional consequences of the tax reform in a model economy with entrepreneurs contrast markedly from those in a model economy with no entrepreneurs. The elimination of progressive taxation has a negligible effect on wealth inequality when entrepreneurship is considered but has a large effect when entrepreneurship is omitted. The framework used is an occupational choice model, in which the decision to become an entrepreneur is determined by the ability to manage a firm and by asset holdings. The calibrated economy can account for the high savings rate of entrepreneurs relative to non-entrepreneurs, and the high concentration of wealth observed in the data. (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 8 (2005)
Issue (Month): 3 (July)
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Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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