Taxation, entrepreneurship, and wealth

Marco Cagetti and Mariacristina De Nardi
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Marco Cagetti: https://www.federalreserve.gov/econres/marco-cagetti.htm

No WP-06-07, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Entrepreneurship is a key determinant of investment, saving, and wealth inequality. We study the aggregate and distributional effects of several tax reforms in a model that recognizes this key role and that matches the large wealth inequality observed in the U.S. data. The aggregate effects of tax reforms can be particularly large when they affect small and medium-sized businesses, which face the most severe financial constraints, rather than big businesses. The consequences of changes in the estate tax depend heavily on the size of its exemption level. The current effective estate tax system insulates smaller businesses from the negative effects of estate taxation, minimizing the aggregate costs of redistribution. Abolishing the current estate tax would generate a modest increase in wealth inequality and slightly reduce aggregate output. Decreasing the progressivity of the income tax generates large increases in output, at the cost of large increases in wealth

Keywords: Taxation; Wealth (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-dge, nep-ent, nep-pbe and nep-pub
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Taxation, entrepreneurship, and wealth (2004)
Working Paper: Taxation, entrepreneurship and wealth (2004)
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