Business Taxation and Venture-Capital-Financed Innovation
AbstractThis paper examines a model of sequential cost-saving innovations financed by venture capital. Successful firms in research can enter the market with a cost advantage over older firms and acquire market power. Innovators have the technical knowledge to conduct R&D but lack the necessary financial resources. Their projects are financed by venture capitalists in exchange for a share of future profits. Venture capitalists can also provide advice and support to innovators, which increases the likelihood of success. Moral hazard between innovators and venture capitalists and rent-seeking behavior introduce various distortions in the level of effort provided by venture capitalists, the size of innovations, and the timing of R&D activities. The system of taxes and subsidies on R&D expenditures, capital gains, and capital investment required to induce the social optimum is characterized. Surprisingly, such a tax system must increase the cost of R&D and lower the return to capital.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 65 (2009)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert).
If references are entirely missing, you can add them using this form.