A note on corporate taxation, limited liability, and asymmetric information
AbstractBecker 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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Bibliographic InfoPaper provided by University of Guelph, Department of Economics in its series Working Papers with number 0704.
Length: 9 pages
Date of creation: 2007
Date of revision:
Other versions of this item:
- A. Miglo, 2007. "A note on corporate taxation, limited liability, and asymmetric information," Journal of Economics, Springer, vol. 92(1), pages 11-19, September.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-18 (All new papers)
- NEP-BEC-2007-06-18 (Business Economics)
- NEP-PPM-2007-06-18 (Project, Program & Portfolio Management)
- NEP-PUB-2007-06-18 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- William G. Gale, 1988. "Federal Lending and the Market for Credit," UCLA Economics Working Papers 504, UCLA Department of Economics.
- 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.
- 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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