Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship

34 Pages Posted: 27 May 2008

See all articles by Vesa Kanniainen

Vesa Kanniainen

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute)

Paolo M. Panteghini

Department of Economics and Management; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: May 2008

Abstract

This paper shows that taxes which are understood to be neutral with respect to the marginal investment decisions may be distortionary with respect to entrepreneurial decisions. In particular, we apply an intertemporal model to show that a comprehensive income tax is distortionary unless all kinds of income are subject to the same tax rate and a worker's option to become an entrepreneur is accounted for. Similarly, the harsh condition of a uniform tax rate is necessary but not sufficient under "new view" dividend tax, cash flow tax, and ACE tax, so that the occupational choice is not distorted. In any case, informational problems may arise and lead to distortive effects.

Keywords: ACE tax, cash flow tax, dividend tax, Johansson-Samuelson theorem, real options

JEL Classification: H25

Suggested Citation

Kanniainen, Vesa and Panteghini, Paolo M., Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship (May 2008). CESifo Working Paper Series No. 2306, Available at SSRN: https://ssrn.com/abstract=1137844

Vesa Kanniainen

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358-0-9-1911 (Phone)
+358-0-191-8877 (Fax)

HOME PAGE: http://www.cesifo.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Paolo M. Panteghini (Contact Author)

Department of Economics and Management ( email )

Contrada Santa Chiara 50
BRESCIA, BS 25122
Italy

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
104
Abstract Views
591
rank
281,260
PlumX Metrics