Adverse selection in credit markets and regressive profit taxation

• 成果类型: Article
• 署名作者: Scheuer, Florian
• 署名单位: Stanford University; National Bureau of Economic Research
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2013.04.010
• 发表日期: 2013
• 页码: 1333-1360
• 关键词: Multidimensional screening; credit markets; Entrepreneurial taxation; occupational choice

摘要

In many countries, taxes on businesses are less progressive than labor income taxes. This paper provides a justification for this pattern based on adverse selection that entrepreneurs face in credit markets. Individuals choose between becoming entrepreneurs or workers and differ in their skill in both of these occupations. I find that endogenous cross-subsidization in the credit market equilibrium results in excessive (insufficient) entry of low-skilled (high-skilled) agents into entrepreneurship. This gives rise to a corrective role for differential taxation of entrepreneurial profits and labor income. In particular, a profit tax that is regressive relative to taxes on labor income restores the efficient occupational choice. (C) 2013 Elsevier Inc. All rights reserved.