Journal of Monetary Economics 2016 DOI: 10.1016/j.jmoneco.2016.03.004 View full text
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Lˇuboš Pástor, Pietro Veronesi

Abstract: a b s t r a c tOur simple model features agents heterogeneous in skill and risk aversion, incomplete financial markets, and redistributive taxation. In equilibrium, agents become entrepreneurs if their skill is sufficiently high or risk aversion sufficiently low. Under heavier taxation, entrepreneurs are more skilled and less risk-averse, on average. Through these selection effects, the tax rate is positively related to aggregate productivity and negatively related to the equity risk premium. Both income ineq…

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