This Paper investigates whether social norms play an important role in the decision to become an entrepreneur. We study whether the individual decision to become an entrepreneur or entrepreneurial income are affected by the decisions of other individuals living in the same municipality. To overcome the identification problems, we use very detailed Swedish data and exploit the large institutional changes that occurred in Sweden in the 1980s and early 1990s (the dissolution of the centralized wage-setting arrangements and the major tax reform in 1990-91), which create a quasi-natural experiment for analysing entrepreneurial choice. The results show that more individuals become entrepreneurs in municipalities where entrepreneurship is more widespread, even though entrepreneurial profits are lower. This suggests that social norms play an important role in the decision to become an entrepreneur. We also evaluate alternative explanations, such the existence of agglomeration economies, or knowledge spillovers. They do not, however, seem to find support in the data.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4157.
Find related papers by JEL classification: J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
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