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 (Seville site)
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)
New Economics Papers: this item is included in nep-ent, nep-ino and nep-pub
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ipt:taxref:201701
Access Statistics for this paper
More papers in JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre (Seville site) Contact information at EDIRC.
Series data maintained by Publication Officer ().