Taxation and the Quality of Entrepreneurship
We study the effect of taxation on entrepreneurship, taking into account both the amount of entry and the quality of new ventures. We show that even with risk neutral agents and no tax evasion progressive taxes can increase entrepreneurial entry, while reducing average firm quality. So called "success taxes" increase startup of lower value business ideas by reducing the option value of pursuing better projects. This suggests that the most common measure used in the literature, the likelihood of entry into self-employment, may underestimate the adverse effect of taxation.
|Date of creation:||13 Nov 2009|
|Date of revision:||30 Oct 2013|
|Publication status:||Published as Asoni, Andrea and Tino Sanandaji, 'Taxation and the Quality of Entrepreneurship' in Journal of Economics , 2014, pages 101-123.|
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