General Economics Seminars: Florian Scheuer (University of Zurich)
Florian Scheuer, UBS Professor of Economics at the University of Zurich, will present in the General Economics Seminar series. His research focuses on public finance, taxation, inequality, public policy, and political economy. His talk is titled "Dilution vs. Risk Taking: Capital Gains Taxes and Entrepreneurship".
"Recent proposals to tax unrealized capital gains or wealth have sparked a debate about their impact on entrepreneurship. We show that accrual-based taxation creates two opposing effects: successful founders face greater dilution from advance tax payments, whereas unsuccessful founders receive tax credits that effectively provide insurance. Using comprehensive new data on U.S. venture capital deals, we find that founder returns remain extremely skewed, with 84% receiving zero exit value while the top 2% capture 80% of total value. Moving from current realization-based to accrual-based taxation would reduce founder ownership at exit by 25% on average but would also increase the fraction receiving positive payoffs from 16% to 47% when tax credits are refunded. Embedding these distributions in a dynamic career choice model, we find that founders with no or moderate risk aversion prefer the current realization-based tax system, while more risk-averse founders prefer accrual-based taxation. We estimate that a 2% annual wealth tax has a similar impact on dilution as taxing unrealized capital gains, but produces no risk-sharing benefits due to the absence of tax credits in case of down rounds."
The General Economics Seminars (GES) are an open seminar series hosted by the Department of Economics, featuring leading international researchers presenting their latest work.