Optimal Linear Income Taxation in Models With Occupational Choice

The purpose of this paper is to investigate the implication of occupational choice for linear income taxation. Occupational choice is restricted to entrepreneurship versus wage earning. Different settings are considered concerning the introduction of uncertainty and that of individuals' heterogeneity in ability or risk aversion. For each setting, an optimal tax formula is derived and shown to be made up of various components pertaining to insurance, redistribution and efficiency