Taxation, Innovation and Entrepreneurship

Hans Gersbach, Ulrich Schetter and Maik Schneider

The Economic Journal, 2019, vol. 129, issue 620, 1731-1781

Abstract: We explore optimal and politically feasible growth policies consisting of basic research investments and taxation. We show that the impact of basic research on the general economy rationalises a taxation pecking order with high labour taxes and low profit taxes. This scheme induces a significant proportion of agents to become entrepreneurs, thereby rationalising substantial investments in basic research fostering their innovation prospects. These entrepreneurial economies, however, may make a majority of workers worse off, giving rise to a conflict between efficiency and equality. We discuss ways of mitigating this conflict, and thus strengthening political support for growth policies.

Date: 2019
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Working Paper: Taxation, Innovation, and Entrepreneurship (2014)
Working Paper: Taxation, Innovation and Entrepreneurship (2013)
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