Journal of Economics

, Volume 88, Issue 2, pp 131–158 | Cite as

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

  • Christiane ClemensEmail author
  • Maik Heinemann


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


OLG endogenous growth entrepreneurship occupational choice redistribution 

JEL Classification

D31 E62 O41 P16 J21 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aghion, P., Howitt, P. 1992A Model of Growth through Creative DestructionEconometrica60323351CrossRefGoogle Scholar
  2. Audretsch, D. B., Thurik, R. 2000Capitalism and Democracy in the 21st Century: From the Managed to the Entrepreneurial EconomyJournal of Evolutionary Economics101734CrossRefGoogle Scholar
  3. Audretsch, D. B., Carree, M. A., Stel, A., Thurik, R. 2002Impeded Industrial Restructuring: The Growth PenaltyKyklos558197CrossRefGoogle Scholar
  4. Barro, R. J., Sala-I-Martin, X. 2004Economic Growth2MIT PressCambridge, MAGoogle Scholar
  5. Bénabou, R. (1996): ‘‘Inequality and Growth’’. In NBER Macroeconomics Annual, Vol. 11, edited by Ben S. Bernanke and Julio J. Rotemberg. Cambridge, MA: MIT Press, pp. 11–74.Google Scholar
  6. Bénabou, R. 2000Unequal Societies: Income Distribution and the Social ContractAmerican Economic Review9096129CrossRefGoogle Scholar
  7. Blanchflower, D. G., Oswald, A. J. 1998What Makes an Entrepreneur?Journal of Labor Economics162660CrossRefGoogle Scholar
  8. Campbell, J. Y. 1996Understanding Risk and ReturnJournal of Political Economy104298345CrossRefGoogle Scholar
  9. Carree, M. A., Stel, A., Thurik, R., Wennekers, S. 2002Economic Development and Business Ownership: An Analysis using Data of 23 OECD Countries in the Period 1976–1996Small Business Economics19271290CrossRefGoogle Scholar
  10. Clemens, C. (2004): ‘‘Entrepreneurship and Growth. An Overlapping Generations Approach.’’ Discussion paper 304, October, Universität Hannover, Wirtschaftswissenschaftliche Fakultät, Hannover, GermanyGoogle Scholar
  11. Cramer, J. S., Hartog, J., Jonker, N., Praag, C. M. 2002Low-risk Aversion Encourages the Choice for Entrepreneurship: An Empirical Test of a TruismJournal of Economic Behavior and Organization482936CrossRefGoogle Scholar
  12. Diamond, P. A. 1965National Debt in a Neoclassical Growth ModelAmerican Economic Review5511261150Google Scholar
  13. Dixit, A., Stiglitz, J. E. 1977Monopolistic Competition and Optimum Product DiversityAmerican Economic Review67297308Google Scholar
  14. Eaton, J., Rosen, H. S. 1980Optimal Redistributive Taxation and UncertaintyQuarterly Journal of Economics95357364CrossRefGoogle Scholar
  15. Epstein, L. G., Zin, S. E. 1989Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical FrameworkEconometrica57937969CrossRefGoogle Scholar
  16. Ethier, W. J. 1982National and International Returns to Scale in the Modern Theory of International TradeAmerican Economic Review72389405Google Scholar
  17. Evans, D. S., Leighton, L. S. 1989Some Empirical Aspects of EntrepreneurshipAmerican Economic Review79519535Google Scholar
  18. Feldstein, M. S. 1969The Effects of Taxation on Risk TakingJournal of Political Economy77755764CrossRefGoogle Scholar
  19. Garcia Peñalosa C., and Wen, J. (2004): “Redistribution and Occupational Choice in a Schumpeterian Growth Model.” CESifo Working Paper 1323. München: CESifo.Google Scholar
  20. Grossman, G., Helpman, E. 1991Quality Ladders in the Theory of GrowthReview of Economic Studies584361CrossRefGoogle Scholar
  21. Heaton, J., Lucas, D. 2000Portfolio Choice and Asset Prices: The Importance of Entrepreneurial RiskJournal of Finance5511631198CrossRefGoogle Scholar
  22. Ilmakunnas, P., Kanniainen, V., and Lammi, U. (1999): ‘‘Entrepreneurship, Economic Risks, and Insurance in the Welfare State.’’ mimeo.Google Scholar
  23. Kanbur, S. M. 1979Impatience, Information and Risk Taking in a General Equilibrium Model of Occupational ChoiceReview of Economic Studies46707718CrossRefGoogle Scholar
  24. Kanbur, S. M. 1979Of Risk Taking and the Personal Distribution of IncomeJournal of Political Economy87769797CrossRefGoogle Scholar
  25. Kanbur, S. M. 1980A Note on Risk Taking, Entrepreneurship, and SchumpeterHistory of Political Economy12488498CrossRefGoogle Scholar
  26. Kanbur, S. M. 1981Risk Taking and Taxation. An Alternative PerspectiveJournal of Public Economics15163184CrossRefGoogle Scholar
  27. Kihlstrom, R. E., Laffont, J.-J. 1979A General Equilibrium Entrepreneurial Theory of Firm Formation based on Risk AversionJournal of Political Economy87719748CrossRefGoogle Scholar
  28. Knight, F. 1921Risk, Uncertainty and ProfitUniversity of Chicago PressChicago(reprint)Google Scholar
  29. Mehra, R., Prescott, E. C. 1985The Equity Premium. A PuzzleJournal of Monetary Economics15145161CrossRefGoogle Scholar
  30. Meltzer, A. H., Richard, S. F. 1981A Rational Theory of the Size of GovernmentJournal of Political Economy89914927CrossRefGoogle Scholar
  31. Moskowitz, T. J., Vissing-Jørgensen, A. 2002The Returns to Entrepreneurial Investment: A Private Equity Premium PuzzleAmerican Economic Review92745778CrossRefGoogle Scholar
  32. Obstfeld, M. 1994Evaluating Risky Consumption Paths: The Role of Intertemporal SubstitutabilityEuropean Economic Review3814711486CrossRefGoogle Scholar
  33. Quadrini, V. 1999The Importance of Entrepreneurship for Wealth Concentration and MobilityReview of Income and Wealth45119CrossRefGoogle Scholar
  34. Ramey, G., Ramey, V. 1995Cross-country Evidence on the Link Between Volatility and GrowthAmerican Economic Review8511381151Google Scholar
  35. Romer, P. M. 1986Increasing Returns and Long-run GrowthJournal of Political Economy9410021037CrossRefGoogle Scholar
  36. Romer, P. M. 1990Endogenous Technological ChangeJournal of Political Economy98S71S102CrossRefGoogle Scholar
  37. Samuelson, P. A. 1958An Exact Consumption-loan Model of Interest with or without the Social Contrivance of MoneyJournal of Political Economy66467482CrossRefGoogle Scholar
  38. Sinn, H.-W. 1996Social Insurance, Incentives and Risk TakingInternational Tax and Public Finance3259280CrossRefGoogle Scholar
  39. Spence, M. 1976Product Selection, Fixed Costs and Monopolistic CompetitionReview of Economic Studies43217235CrossRefGoogle Scholar
  40. Varian, H. R. 1980Redistributive Taxation as Social InsuranceJournal of Public Economics144968CrossRefGoogle Scholar
  41. Weil, P. 1990Non-expected Utility in MacroeconomicsQuarterly Journal of Economics1052942CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Wien 2006

Authors and Affiliations

  1. 1.Macroeconomics Department HannoverGermany
  2. 2.Institute of EconomicsLüneburgGermany

Personalised recommendations