Taxation, Innovation, and Entrepreneurship

Hans Gersbach, Ulrich Schetter, Maik Schneider

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We explore optimal and politically feasible growth policies consisting of basic research investments and taxation. We show that the impact of basic research on the general economy rationalises a taxation pecking order with high labour taxes and low profit taxes. This scheme induces a significant proportion of agents to become entrepreneurs, thereby rationalising substantial investments in basic research fostering their innovation prospects. These entrepreneurial economies, however, may make a majority of workers worse off, giving rise to a conflict between efficiency and equality. We discuss ways of mitigating this conflict, and thus strengthening political support for growth policies.
Original languageEnglish
Pages (from-to)1731-1781
Number of pages51
JournalThe Economic journal
Issue number620
Early online date11 Jul 2018
Publication statusPublished - 1 May 2019

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