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Financiers vs. Engineers: Should the Financial Sector be Taxed or Subsidized?

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Author Info
Thomas Philippon
Abstract

I study the allocation of human capital in an economy with production externalities, financial constraints and career choices. Agents choose to become entrepreneurs, workers or financiers. Entrepreneurship has positive externalities, but innovators face borrowing constraints and require the services of financiers in order to invest efficiently. When investment and education subsidies are chosen optimally, I find that the financial sector should be taxed in exactly the same way as the non-financial sector. When direct subsidies to investment and scientific education are not feasible, giving a preferred tax treatment to the financial sector can improve welfare by increasing aggregate investment in research and development.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13560.

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Date of creation: Oct 2007
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Handle: RePEc:nbr:nberwo:13560

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G2 - Financial Economics - - Financial Institutions and Services
H2 - Public Economics - - Taxation, Subsidies, and Revenue
O3 - Economic Development, Technological Change, and Growth - - Technological Change
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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    Other versions:
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  13. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
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  15. Zvi Griliches, 1979. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 92-116, Spring. [Downloadable!] (restricted)
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