Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171649
Authors: 
Gersbach, Hans
Schetter, Ulrich
Schneider, Maik T.
Year of Publication: 
2014
Series/Report no.: 
Economics Working Paper Series 14/206
Abstract: 
We explore optimal and politically feasible growth policies in the form of basic research investments and taxation. Basic research is a public good that benefits innovating entrepreneurs, but its provision and financing also affect the entire economy -- in particular, occupational choices of potential entrepreneurs, wages, dividends, and aggregate output. We show that the impact of basic research on the general economy rationalizes a taxation pecking order to finance basic research. More specifically, in a society with desirably dense entrepreneurial activity, a large share of funds for basic research should be financed by labor taxation, while a minor share should be left to profit taxation. Such tax schemes will induce a significant proportion of agents to become entrepreneurs, thereby rationalizing substantial investments in basic research that fosters 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 the political support for growth policies.
Subjects: 
Basic research
economic growth
entrepreneurship
income taxation
political economys
JEL: 
D72
H20
H40
O31
O38
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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