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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. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, 02.
  2. Masako Ueda, 2000. "Bank versus venture capital," Economics Working Papers 522, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Christian Keuschnigg & Søren Bo Nielsen, 2002. "Start-ups, Venture Capitalists, and the Capital Gains Tax," CESifo Working Paper Series 742, CESifo Group Munich.
  4. 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.
  5. Schmidt, Klaus M., 2003. "Convertible Securities and Venture Capital Finance," Munich Reprints in Economics 19769, University of Munich, Department of Economics.
  6. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
  7. 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.
  8. Christian Keuschnigg, 2003. "Optimal Public Policy For Venture Capital Backed Innovation," University of St. Gallen Department of Economics working paper series 2003 2003-09, Department of Economics, University of St. Gallen.
  9. 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.
  10. 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.
  11. 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.
  12. Sinn, Hans-Werner, 1991. "The vanishing harberger triangle," Munich Reprints in Economics 19842, University of Munich, Department of Economics.
  13. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. 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.
  15. Roger H. Gordon, 1998. "Can High Personal Tax Rates Encourage Entrepreneurial Activity?," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 49-80, March.
  16. Christian Keuschnigg & Soren Bo Nielsen, 2000. "Tax Policy, Venture Capital, and Entrepreneurship," NBER Working Papers 7976, National Bureau of Economic Research, Inc.
  17. Schmidt, Klaus M., 1999. "Convertible Securities and Venture Capital Finance," CEPR Discussion Papers 2317, C.E.P.R. Discussion Papers.
  18. Repullo, R. & Suarez, J., 1998. "Venture Capital Finance: a Security Design Approach," Papers 9804, Centro de Estudios Monetarios Y Financieros-.
  19. Poterba, James M., 1989. "Capital Gains Tax Policy Toward Entrepreneurship," National Tax Journal, National Tax Association, vol. 42(3), pages 375-89, September.
  20. 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.
  21. 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.
  22. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo Group Munich.
  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. Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitalists As Principals: Contracting, Screening, and Monitoring," NBER Working Papers 8202, National Bureau of Economic Research, Inc.
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