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On the Effects of Redistribution on Growth and Entrepreneurial Risk-Taking

  • Christiane Clemens

    ()

    (Economics Department, University of Hannover)

  • Maik Heinemann

    ()

    (Institute of Economics, University of Lüneburg)

This paper investigates the redistributive effects of taxation on occupational choice and growth. We discuss a twoñsector economy in the spirit of Romer (1990). Agents engage in one of two alternative occupations: either selfñemployment in an intermediate goods sector characterized by monopolistic competition, or employment as an ordinary worker in this sector. Entrepreneurial prots are stochastic. The occupational choice under risk endogenizes the number of rms in the intermediate goods industry. While the presence of entrepreneurial risk results in a suboptimally low number of rms and depresses growth, nonñlinear tax schemes are partly capable of compensating the negative by effects by ex post providing a social insurance.

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Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 6.

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Length: 24 pages
Date of creation: 17 Mar 2005
Date of revision:
Handle: RePEc:lue:wpaper:6
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