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A note on corporate taxation, limited liability, and asymmetric information

Author

Listed:
  • Anton Miglo

    (University of Guelph, Department of Economics)

Abstract

Becker and Fuest (forthcoming) provides a new explanation for the important and puzzling link between limited liability and corporate taxation. The authors argue that a corporate tax on all entrepreneurs with limited liability is optimal when entrepreneurs can offset potential losses and when asymmetric information exists regarding projects qualities. This note considers a model with slightly modified production technology. It confirms that entrepreneurs' abilities to offset losses and the existence of asymmetric information may affect government policy. However, it also shows that the optimal taxation policy differs from that in Becker and Fuest (forthcoming).

Suggested Citation

  • Anton Miglo, 2007. "A note on corporate taxation, limited liability, and asymmetric information," Working Papers 0704, University of Guelph, Department of Economics and Finance.
    • Handle: RePEc:gue:guelph:2007-4
    as

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    File URL: http://www.uoguelph.ca/economics/repec/workingpapers/2007/2007-04.pdf
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    References listed on IDEAS

    as
    1. Gale, William G., 1990. "Federal lending and the market for credit," Journal of Public Economics, Elsevier, vol. 42(2), pages 177-193, July.
    2. Johannes Becker & Clemens Fuest, 2007. "Why is there Corporate Taxation? The Role of Limited Liability Revisited," Journal of Economics, Springer, vol. 92(1), pages 1-10, September.
    3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    4. Frederique Bracoud & Brian Hillier, 2000. "Equity or Debt? Contracts in Markets with Asymmetric Information," Manchester School, University of Manchester, vol. 68(1), pages 1-23, January.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Ralf Ewert & Rainer Niemann, 2010. "Limited Liability, Asymmetric Taxation, and Risk Taking - Why Partial Tax Neutralities can be Harmful," CESifo Working Paper Series 3301, CESifo.
    2. Ralf Ewert & Rainer Niemann, 2011. "Haftungsbeschränkungen, Verlustverrechnungsbeschränkungen und die Bereitschaft zur Risikoübernahme," Schmalenbach Journal of Business Research, Springer, vol. 63(63), pages 94-131, January.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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