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Are Business Start-Ups Liquidity Constrained? Evidence from a Quasi-Experimental Allocation of Housing Wealth in East Germany

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  • Tobias Fuchs
  • Georg Gebhardt

Abstract

Are entrepreneurs liquidity constraint? Using quasi-random housing wealth variation resulting from communist era decisions, we argue yes, as we find that wealthier East Germans are more likely to become self-employed after reunification. In the literature, no such strong relationship was found using regional house price changes the US and UK. In these economies, our results suggest, the effects of liquidity constraints are masked by anticipatory savings of the would be self-employed, which was impossible for the East Germans in our sample due to communism.

Suggested Citation

  • Tobias Fuchs & Georg Gebhardt, 2019. "Are Business Start-Ups Liquidity Constrained? Evidence from a Quasi-Experimental Allocation of Housing Wealth in East Germany," CESifo Working Paper Series 7765, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7765
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    References listed on IDEAS

    as
    1. Stephen J. Redding & Daniel M. Sturm, 2008. "The Costs of Remoteness: Evidence from German Division and Reunification," American Economic Review, American Economic Association, vol. 98(5), pages 1766-1797, December.
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    3. Thomas Astebro & Irwin Bernhardt, 1999. "The Winner's Curse of Human Capital," Working Papers 99-5, Center for Economic Studies, U.S. Census Bureau.
    4. Schüssler, Reinhard & Lang, Oliver & Buslei, Hermann, 2000. "Wohlstandsverteilung in Deutschland 1978-1993," Study / edition der Hans-Böckler-Stiftung, Hans-Böckler-Stiftung, Düsseldorf, volume 34, number 34, January.
    5. 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.
    6. Cressy, Robert, 2000. "Credit rationing or entrepreneurial risk aversion? An alternative explanation for the Evans and Jovanovic finding," Economics Letters, Elsevier, vol. 66(2), pages 235-240, February.
    7. Xu, Bin, 1998. "A reestimation of the Evans-Jovanovic entrepreneurial choice model," Economics Letters, Elsevier, vol. 58(1), pages 91-95, January.
    8. Thomas Åstbro & Irwin Bernhardt, 2005. "The Winner’s Curse of Human Capital," Small Business Economics, Springer, vol. 24(1), pages 63-78, February.
    9. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
    10. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-1526, November.
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    More about this item

    Keywords

    self-employment; financial constraints; wealthy households; starting capital;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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