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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
Article

Abstract

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.

Keywords

OLG endogenous growth entrepreneurship occupational choice redistribution 

JEL Classification

D31 E62 O41 P16 J21 

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Copyright information

© Springer-Verlag Wien 2006

Authors and Affiliations

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

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