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Public Taxation and Venture Capital Backed Entrepreneurship

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  • Christian Keuschnigg

    ()

  • Soren Bo Nielsen

    ()

Abstract

In recent years, venture capital has increasingly become a factor in the financing of new firms. We examine how the value of mature firms determines the incentives of entrepreneurs to start up new firms and of venture capitalists to finance and advise them. We examine how capital gains taxes as well as subsidies to start-up costs of new firms affect venture capital backed entrepreneurship. We also argue that dividend and capital gains taxes on mature firms have important consequences for start-up firms as well.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2003/dp0317keuschnigg_ganz.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2003 with number 2003-17.

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Length: 34 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:usg:dp2003:2003-17

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Keywords: Taxes; venture capital; entrepreneurship; double moral hazard;

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References

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  1. Christian Keuschnigg & Søren Bo Nielsen, 2002. "Start-ups, Venture Capitalists, and the Capital Gains Tax," CESifo Working Paper Series 742, CESifo Group Munich.
  2. Christian Keuschnigg & Søren Bo Nielsen, . "Tax Policy, Venture Capital, and Entrepreneurship," EPRU Working Paper Series 00-18, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
  4. Schmidt, Klaus M., 1999. "Convertible Securities and Venture Capital Finance," CEPR Discussion Papers 2317, C.E.P.R. Discussion Papers.
  5. Hellmann, Thomas F. & Puri, Manju, 2000. "Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence," Research Papers 1661, Stanford University, Graduate School of Business.
  6. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
  7. BOADWAY, Robin & MARCHAND, Maurice & PESTIEAU, Pierre, . "Optimal linear income taxation in models with occupational choice," CORE Discussion Papers RP -958, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Keuschnigg, Christian, 2003. "Optimal Public Policy for Venture Capital Backed Innovation," CEPR Discussion Papers 3850, C.E.P.R. Discussion Papers.
  9. Rafael Repullo & Javier Suarez, 2004. "Venture Capital Finance: A Security Design Approach," Review of Finance, Springer, vol. 8(1), pages 75-108.
  10. Ueda, Masako, 2002. "Banks versus Venture Capital," CEPR Discussion Papers 3411, C.E.P.R. Discussion Papers.
  11. Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitalists As Principals: Contracting, Screening, and Monitoring," NBER Working Papers 8202, National Bureau of Economic Research, Inc.
  12. Hans-Werner Sinn, 1990. "The Vanishing Harberger Triangle," NBER Working Papers 3225, National Bureau of Economic Research, Inc.
  13. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo Group Munich.
  14. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  15. Roger H. Gordon & Julie Berry Cullen, 2002. "Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S," NBER Working Papers 9015, National Bureau of Economic Research, Inc.
  16. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2086, October.
  17. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
  18. Poterba, James M., 1989. "Capital Gains Tax Policy Toward Entrepreneurship," National Tax Journal, National Tax Association, vol. 42(3), pages 375-89, September.
  19. Fuest, Clemens & Huber, Bernd & Nielsen, Søren Bo, 2003. "Why is the corporate tax rate lower than the personal tax rate? The role of new firms," Munich Reprints in Economics 20327, University of Munich, Department of Economics.
  20. Schmidt, Klaus M., 2003. "Convertible Securities and Venture Capital Finance," Munich Reprints in Economics 19769, University of Munich, Department of Economics.
  21. Roger H. Gordon, 1998. "Can High Personal Tax Rates Encourage Entrepreneurial Activity?," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 49-80, March.
  22. Audretsch, David B & Lehmann, Erik, 2002. "Debt or Equity? The Role of Venture Capital in Financing the New Economy in Germany," CEPR Discussion Papers 3656, C.E.P.R. Discussion Papers.
  23. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  24. Fuest, Clemens & Huber, Bernd & Nielsen, Soren B., 2003. "Why is the corporate tax rate lower than the personal tax rate?: The role of new firms," Journal of Public Economics, Elsevier, vol. 87(1), pages 157-174, January.
  25. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-84.
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