English, Article, Journal or magazine article edition: Taxation, entrepreneurship and wealth Marco Cagetti; Mariacristina De Nardi

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Bookmark: http://trove.nla.gov.au/version/75247
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Taxation, entrepreneurship and wealth
Author
  • Marco Cagetti
  • Mariacristina De Nardi
Physical Description
  • preprint
Notes
  • Taxation ; Wealth
  • RePEc:fip:fedhwp:wp-06-07
  • Entrepreneurship is a key determinant of investment, saving, and wealth inequality. We study the aggregate and distributional effects of several tax reforms in a model that recognizes this key role and that matches the large wealth inequality observed in the U.S. data. The aggregate effects of tax reforms can be particularly large when they affect small and medium-sized businesses, which face the most severe financial constraints, rather than big businesses. The consequences of changes in the estate tax depend heavily on the size of its exemption level. The current effective estate tax system insulates smaller businesses from the negative effects of estate taxation, minimizing the aggregate costs of redistribution. Abolishing the current estate tax would generate a modest increase in wealth inequality and slightly reduce aggregate output. Decreasing the progressivity of the income tax generates large increases in output, at the cost of large increases in wealth concentration.
  • RePEc:fip:fedmsr:340
  • Entrepreneurship is a key determinant of investment, saving, wealth holdings, and wealth inequality. We study the aggregate and the distributional effects of several tax reforms in a model that recognizes the key role played by the entrepreneurs, and that matches very well the extreme degree of wealth inequality observed in the U.S. data. We find that the effects of tax reforms on output and capital formation can be particularly large when they affect the majority of small and medium-size businesses, which face the most severe financial constraints, rather than a small number of big businesses. We show that the consequences of changes in the estate tax depend heavily on the size of its exemption level. The current effective estate tax system seems to insulate most of the businesses from the negative effects of estate taxation thus minimizing the aggregate costs of redistribution. Abolishing the current estate tax would generate a modest increase in wealth inequality and slightly reduce aggregate output. Decreasing progressivity of the income tax can generate large increases in output, as this stimulates entrepreneurial savings and capital formation, but at the cost of large increases in wealth concentration.
  • RePEc:fip:fedmwp:632
Language
  • English
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