This paper provides a novel efficiency rationale for progressive corporate taxation based on commitment problems in entrepreneurial finance. Poor entrepreneurs cannot credibly commit to efficient projects because non-verifiable private benefits limit pledgeable income. We show the government uniquely solves this through “superpledgeability”: combining upfront subsidies with tax enforcement powers that extract payments beyond private contracting limits. While subsidies alone merely shift financing burdens and taxes alone cannot enable unfunded projects, together they create total claims exceeding private market capabilities. The mechanism is self-financing – taxes on successful entrepreneurs fully recover subsidies in steady state. Optimal progressivity depends on moral hazard severity, not redistributive preferences. With risk-neutral entrepreneurs, any progressivity level is equally efficient; risk aversion yields unique optimality balancing insurance against deadweight losses. The system remains politically stable as entrepreneurs accept future tax obligations to access otherwise unattainable projects. This framework explains why innovation-intensive economies embrace extreme progressivity, revealing it as an efficient solution to commitment problems rather than redistribution.
