Skip to content

Research at St Andrews

Entrepreneurship, agency frictions and redistributive capital taxation

Research output: Working paper


School/Research organisations


Motivated by the observation that among OECD countries redistribution is negatively correlated with entrepreneurial activity, we examine the implications of entrepreneurial financial frictions for optimal linear capital taxation, in a setting where the government is concerned with redistribution. By including financial frictions, we emphasize the effect of a new channel affecting the equity-efficiency trade-off of redistribution: taxes affect the allocative efficiency of capital and, ultimately, total factor productivity. We find that high tax rates are optimal, provided that they are applied to wealth, rather than risky capital. Under plausible parameter values, we find that the optimal tax on risky capital is lower than that on wealth, and roughly in line with current U.S. levels. This suggests welfare gains from taxing only wealth at a higher rate.


Original languageEnglish
Number of pages52
Publication statusUnpublished - 27 Aug 2017

Discover related content
Find related publications, people, projects and more using interactive charts.

View graph of relations

Related by author

  1. The clarity incentive for issue engagement in campaigns

    Basu, C. & Knowles, M. P., 14 Jun 2017, (Unpublished) 29 p.

    Research output: Working paper

  2. Capital deaccumulation and the large persistent effects of financial crises

    Knowles, M. P., 17 Jan 2015, (Unpublished) 57 p.

    Research output: Working paper

ID: 252070570