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Entrepreneurship and the welfare state: a reply

  • Magnus Henrekson

It is widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation, and job creation. In Henrekson (2005, Industrial and Corporate Change, 14(3), 437--467), it was shown that the supply of productive entrepreneurship is likely to be reduced by the kind of tax and welfare arrangements that prevail in a mature welfare state. Welfare state institutions developed mostly during a period when it was common among politicians and economists to assume that individual entrepreneurship and new firms were of minor importance. However, in an environment where entry, exit, and turnover of firms are important for growth, and where scale economies are less important, this kind of model may be more problematic. There are a number of measures that can be implemented to strengthen entrepreneurial incentives within extensive welfare states, but their implementation is unlikely because there are strong vested interests, including the incumbent business elite, defending the current model. A number of objections against this analysis have been raised by James K. Galbraith and Ronald Dore in the previous issue of Industrial and Corporate Change. In this reply, it is shown that these objections are either largely unfounded or just misunderstandings. Copyright 2006, Oxford University Press.

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Article provided by Oxford University Press in its journal Industrial and Corporate Change.

Volume (Year): 15 (2006)
Issue (Month): 3 (June)
Pages: 579-593

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Handle: RePEc:oup:indcch:v:15:y:2006:i:3:p:579-593
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  1. Lindbeck, Assar & Nyberg, Sten & Weibull, Jörgen W., 1997. "Social Norms and Economic Incentives in the Welfare State," Working Paper Series 476, Research Institute of Industrial Economics.
  2. Henrekson, Magnus & Roine, Jesper, 2006. "Promoting Entrepreneurship in the Welfare State," SSE/EFI Working Paper Series in Economics and Finance 621, Stockholm School of Economics.
  3. Freeman, Richard B, 1995. "The Large Welfare State as a System," American Economic Review, American Economic Association, vol. 85(2), pages 16-21, May.
  4. Milo Bianchi & Magnus Henrekson, 2005. "Is Neoclassical Economics still Entrepreneurless?," Kyklos, Wiley Blackwell, vol. 58(3), pages 353-377, 07.
  5. Sinn, Hans-Werner, 1996. "Social Insurance, Incentives and Risk Taking," Munich Reprints in Economics 19834, University of Munich, Department of Economics.
  6. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
  7. Paul Reynolds & Niels Bosma & Erkko Autio & Steve Hunt & Natalie De Bono & Isabel Servais & Paloma Lopez-Garcia & Nancy Chin, 2005. "Global Entrepreneurship Monitor: Data Collection Design and Implementation 1998–2003," Small Business Economics, Springer, vol. 24(3), pages 205-231, 02.
  8. Lindbeck, Assar, 1995. "Hazardous Welfare-State Dynamics," American Economic Review, American Economic Association, vol. 85(2), pages 9-15, May.
  9. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
  10. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
  11. Andreas Bergh, 2005. "On Inter- and Intra-Individual Redistribution of the Welfare State," Social Science Quarterly, Southwestern Social Science Association, vol. 86(s1), pages 984-995.
  12. Davis, Steven J. & Henrekson, Magnus, 2004. "Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons," SSE/EFI Working Paper Series in Economics and Finance 560, Stockholm School of Economics.
  13. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
  14. Henrekson, Magnus, 2002. "Entrepreneurship: A Weak Link in the Welfare State," SSE/EFI Working Paper Series in Economics and Finance 518, Stockholm School of Economics, revised 04 Mar 2005.
  15. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  16. Ronald Dore, 2006. "The entrepreneurial house has many mansions," Industrial and Corporate Change, Oxford University Press, vol. 15(1), pages 207-213, February.
  17. Acs, Zoltan J & Phillips, Ronnie J, 2002. " Entrepreneurship and Philanthropy in American Capitalism," Small Business Economics, Springer, vol. 19(3), pages 189-204, November.
  18. Lindbeck, Assar, 1982. "Tax Effects versus Budget Effects on Labor Supply," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 473-89, October.
  19. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
  20. James K. Galbraith, 2006. "Some notes on entrepreneurship and welfare state," Industrial and Corporate Change, Oxford University Press, vol. 15(1), pages 203-207, February.
  21. repec:cup:cbooks:9780521828130 is not listed on IDEAS
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