Financiers Vs. Engineers: Should the Financial Sector Be Taxed or Subsidized?

27 Pages Posted: 17 Mar 2009

See all articles by Thomas Philippon

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 16, 2008

Abstract

I study the allocation of human capital in an economy with production externalities, financial constraints and career choices. Agents choose to become entrepreneurs, workers or financiers. Entrepreneurship has positive externalities, but innovators face borrowing constraints and require the services of financiers in order to invest efficiently. When investment and education subsidies are chosen optimally, I find that the financial sector should be taxed in exactly the same way as the non-financial sector. When direct subsidies to investment and scientific education are not feasible, giving a preferred tax treatment to the financial sector can improve welfare by increasing aggregate investment in research and development.

Keywords: human capital, growth, financing

Suggested Citation

Philippon, Thomas, Financiers Vs. Engineers: Should the Financial Sector Be Taxed or Subsidized? (September 16, 2008). AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1361267 or http://dx.doi.org/10.2139/ssrn.1361267

Thomas Philippon (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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