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Promoting Entrepreneurship in the Welfare State

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  • Henrekson, Magnus

    () (The Research Institute of Industrial Economics)

  • Roine, Jesper

    () (Stockholm School of Economics)

Abstract

Entrepreneurship is largely ignored or treated in a highly simplified way in endogenous growth theory. Still, it is now widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. In this study we provide an in-depth examination of how the supply of productive entrepreneurship is likely to be affected by the kind of tax and welfare arrangements that may prevail in a mature welfare state. Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is argued that the Swedish welfare state early on chose a specific “Swedish Model” of trying to combine ambitious welfare programs and a high tax burden with good opportunities for economic growth. This particular view rested heavily on the assumption that innovative activity was best performed in large established firms and that entry of new firms was less important. Consequently, policy and institutions were geared to promoting certain types of activities which could deliver growth if scale economies are important and intrapreneurship can substitute for entrepreneurship. 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. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are broadly consistent with the identified structure of payoffs. A number of measures that can be implemented to strengthen entrepreneurial incentives within extensive welfare states are discussed, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions.

Suggested Citation

  • Henrekson, Magnus & Roine, Jesper, 2005. "Promoting Entrepreneurship in the Welfare State," Working Paper Series 653, Research Institute of Industrial Economics, revised 09 Apr 2006.
  • Handle: RePEc:hhs:iuiwop:0653
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    Cited by:

    1. Henrekson, Magnus & Sanandaji, Tino, 2013. "Small Business Activity Does not Measure Entrepreneurship," Working Paper Series 959, Research Institute of Industrial Economics, revised 26 Jan 2014.
    2. Bögenhold, Dieter & Fachinger, Uwe, 2009. "Entrepreneurship, Innovation and Spatial Disparities: Divisions and Changes of Self-employment and Firms," MPRA Paper 19245, University Library of Munich, Germany.
    3. Magnus Henrekson, 2006. "Entrepreneurship and the welfare state: a reply," Industrial and Corporate Change, Oxford University Press, vol. 15(3), pages 579-593, June.
    4. Bögenhold, Dieter & Fachinger, Uwe, 2010. "How Diverse is Entrepreneurship? Observations on the social heterogeneity of self-employment in Germany," MPRA Paper 23271, University Library of Munich, Germany.
    5. Jeffrey R. Cornwall & William J. Dennis Jr, 2012. "Purpose – This paper aims to examine some basic pathways to bring issues of public policy into entrepreneurship classes. Design/methodology/approach – The paper looks at policy issues related to taxat," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 1(4), pages 12-21, April.
    6. Concepción Román & Emilio Congregado & José Millán, 2011. "Dependent self-employment as a way to evade employment protection legislation," Small Business Economics, Springer, vol. 37(3), pages 363-392, October.

    More about this item

    Keywords

    Economic Growth; Entrepreneurship; Innovation; Swedish Model; Welfare State;

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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