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Venture Capital: A Case for Investment Promotion

Author

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  • Keuschnigg, Christian

Abstract

Venture capitalists provide risk capital and valuable monitoring services that are essential for the success of upstart companies. The financial sector’s expertise in monitoring investment proposals may increase with the accumulated experience in funding such projects. In the other direction, the productivity gains from learning lower the cost of venture capital finance and reinforce start-up investment. Since learning depends on aggregate investment, the effect is external to individual agents. The paper demonstrates how the nature of the externality depends on the state of financial sector development, and how the appropriate tax/subsidy policy should be tailored to it.

Suggested Citation

  • Keuschnigg, Christian, 1998. "Venture Capital: A Case for Investment Promotion," CEPR Discussion Papers 1887, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1887
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    Citations

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    Cited by:

    1. Berthold, Norbert & Fehn, Rainer, 2002. "Struktureller Wandel, new economy und Beschäftigungsentwicklung: welche Rolle spielen die institutionellen Rahmenbedingungen auf dem Kapitalmarkt?," Discussion Paper Series 53, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.

    More about this item

    Keywords

    corrective subsidies; Externalities; financial sector development; up-start investment;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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