Tax policy and entrepreneurial entry with information asymmetry and learning

Diego d'Andria

No 2017-01, JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre

Abstract: We study a market with entrepreneurial and workers entry where both entrepreneurs' abilities and workers' qualities are private information. We develop an Agent-Based Computable model to mimic the mechanisms described in a previous analytical model (Boadway and Sato 2011). Then, we introduce the possibility that agents may learn over time about abilities and qualities of other agents, by means of Bayesian inference over informative signals. We show how such different set of assumptions affects the optimality of second-best tax and subsidy policies. While with no information it is optimal to have a subsidy to labour and a simultaneous tax on entrepreneurs to curb excessive entry, with learning a subsidy-only policy can be optimal as the detrimental effects of excessive entrepreneurial entry are (partly or totally) compensated by surplus-increasing faster learning.

Keywords: Entrepreneurship; Taxation; Asymmetric Information; Learning; Adverse Selection; Agent-Based Computational Model (search for similar items in EconPapers)
Pages: 21 pages
Date: 2017-02
New Economics Papers: this item is included in nep-ent, nep-ino and nep-pub
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Journal Article: Tax policy and entrepreneurial entry with information asymmetry and learning (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ipt:taxref:201701

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