The Effect of Tax Progressivity on the Quality of Entrepreneurship: How Significant is the Phenomenon of 'Poor Entrepreneurship'?

26 Pages Posted: 28 Mar 2015

See all articles by Mina Baliamoune-Lutz

Mina Baliamoune-Lutz

University of North Florida ; Economic Research Forum; Policy Center for the New South

Pierre Garello

Aix-Marseille University

Date Written: December 15, 2014

Abstract

We develop a simple theoretical model that analyzes the interaction between progressive taxation, effort and wealth creation. We show how progressive taxation, while not affecting the behavior of entrepreneurs with less profitable profit opportunities, leads entrepreneurs benefiting from good or fairly good opportunities to reduce effort in order to lower the tax burden they would face should they maintain higher levels of effort. We then test the model predictions using data from small and medium-sized Italian firms from the Lombardy region in Italy and use the values for return to assets (ROA) as proxy for entrepreneur’s effort. The empirical results suggest that, indeed, progressive taxation causes entrepreneurs to lower their effort.

Keywords: Taxation, quality of entrepreneurial activity, entrepreneur’s effort, Italian (Lombardy region) firm-level data

JEL Classification: H25, L25, L26

Suggested Citation

Baliamoune-Lutz, Mina and Garello, Pierre, The Effect of Tax Progressivity on the Quality of Entrepreneurship: How Significant is the Phenomenon of 'Poor Entrepreneurship'? (December 15, 2014). Available at SSRN: https://ssrn.com/abstract=2585567 or http://dx.doi.org/10.2139/ssrn.2585567

Mina Baliamoune-Lutz

University of North Florida ( email )

1 UNF Drive
Jacksonville, FL 32224-2645
United States

HOME PAGE: http://www.unf.edu/

Economic Research Forum ( email )

21 Al-Sad Al-Aaly Street
Dokki, Giza
Cairo
Egypt

HOME PAGE: http://erf.org.eg/

Policy Center for the New South ( email )

Campus of Mohammed VI Polytechnic University
Rabat, Rabat-Sale
Morocco

HOME PAGE: http://https://www.policycenter.ma/

Pierre Garello (Contact Author)

Aix-Marseille University ( email )

15-19 Allée Claude Forbin
Aix-en-Provence, cedex 1, 13267
France

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