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

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  • 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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Bibliographic Info

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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Publication status: published as Philippon, Thomas. 2010. "Financiers versus Engineers: Should the Financial Sector Be Taxed or Subsidized?" American Economic Journal: Macroeconomics, 2(3): 158-82. DOI: 10.1257/mac.2.3.158
Handle: RePEc:nbr:nberwo:13560

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  1. Thomas Philippon & Ariell Reshef, 2007. "Skill Biased Financial Development: Education, Wages and Occupations in the U.S. Financial Sector," NBER Working Papers 13437, National Bureau of Economic Research, Inc.
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  12. Thomas Philippon, 2007. "Why Has the U.S. Financial Sector Grown so Much? The Role of Corporate Finance," NBER Working Papers 13405, National Bureau of Economic Research, Inc.
  13. Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, Elsevier, vol. 65(1), pages 1-42, February.
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  18. repec:fth:wobaco:1083 is not listed on IDEAS
  19. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
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Cited by:
  1. Pierre Cahuc & Edouard Challe, 2012. "Produce Or Speculate? Asset Bubbles, Occupational Choice, And Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1105-1131, November.

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