Skip to main content

Research Repository

Advanced Search

Tax policy and the financing of innovation

Bryce, Luis A.; Bonfatti, Roberto; Luigi, Pisano

Authors

Luis A. Bryce

Pisano Luigi



Abstract

We study tax policy in a Schumpeterian growth model with asymmetric information in the financing of innovation. Investors cannot a priori distinguish between more or less talented entrepreneurs. Net-worth allows talented entrepreneurs to self-invest and avoid being pooled with less talented entrepreneurs in the credit market. Increasing net-worth boosts innovation even when financed through higher profit taxes. Taxing consumption effectively raises net-worth and subsidizes profits simultaneously. Sufficiently taxing consumption implements the social optimum free of adverse selection. If forced to tax consumption less, the government implements a second best allocation with adverse selection when boosting net-worth enough to avoid adverse selection requires taxing profits excessively.

Citation

Bryce, L. A., Bonfatti, R., & Luigi, P. (2016). Tax policy and the financing of innovation. Journal of Public Economics, 135, https://doi.org/10.1016/j.jpubeco.2015.12.010

Journal Article Type Article
Acceptance Date Dec 18, 2015
Online Publication Date Jan 7, 2016
Publication Date Mar 1, 2016
Deposit Date Feb 24, 2016
Publicly Available Date Feb 24, 2016
Journal Journal of Public Economics
Print ISSN 0047-2727
Electronic ISSN 0047-2727
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 135
DOI https://doi.org/10.1016/j.jpubeco.2015.12.010
Keywords Innovation; Tax policy; Asymmetric information; Adverse selection
Public URL http://eprints.nottingham.ac.uk/id/eprint/31928
Publisher URL http://www.sciencedirect.com/science/article/pii/S0047272715002145
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0

Files


Pre-proofs version.pdf (715 Kb)
PDF

Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0





You might also like



Downloadable Citations