IDEAS home Printed from https://ideas.repec.org/p/hhs/iuiwop/0813.html
   My bibliography  Save this paper

Taxation and the Quality of Entrepreneurship

Author

Listed:
  • Asoni, Andrea

    () (Research Institute of Industrial Economics (IFN))

  • Sanandaji, Tino

    () (Research Institute of Industrial Economics (IFN))

Abstract

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.

Suggested Citation

  • Asoni, Andrea & Sanandaji, Tino, 2009. "Taxation and the Quality of Entrepreneurship," Working Paper Series 813, Research Institute of Industrial Economics, revised 30 Oct 2013.
  • Handle: RePEc:hhs:iuiwop:0813
    as

    Download full text from publisher

    File URL: http://www.ifn.se/wfiles/wp/wp813.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
    2. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, pages 323-351.
    4. Gordon, Roger H. & MacKie-Mason, Jeffrey K., 1994. "Tax distortions to the choice of organizational form," Journal of Public Economics, Elsevier, pages 279-306.
    5. Magnus Henrekson & Tino Sanandaji, 2011. "Entrepreneurship and the theory of taxation," Small Business Economics, Springer, vol. 37(2), pages 167-185, September.
    6. Kanbur, S M Ravi, 1982. "Entrepreneurial Risk Taking, Inequality, and Public Policy: An Application of Inequality Decomposition Analysis to the General Equilibrium Effects of Progressive Taxation," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 1-21, February.
    7. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    8. Richard Kneller & Danny McGowan, "undated". "Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries," Discussion Papers 11/08, University of Nottingham, School of Economics.
    9. Mikael Stenkula, 2012. "Taxation and entrepreneurship in a welfare state," Small Business Economics, Springer, vol. 39(1), pages 77-97, July.
    10. Donald Bruce & John Deskins, 2012. "Can state tax policies be used to promote entrepreneurial activity?," Small Business Economics, Springer, vol. 38(4), pages 375-397, May.
    11. Gentry, William M. & Hubbard, R. Glenn, 2004. "The effects of progressive income taxation on job turnover," Journal of Public Economics, Elsevier, vol. 88(11), pages 2301-2322, September.
    12. Steven N. Kaplan & Berk A. Sensoy & Per Strömberg, 2009. "Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies," Journal of Finance, American Finance Association, vol. 64(1), pages 75-115, February.
    13. Cullen, Julie Berry & Gordon, Roger H., 2007. "Taxes and entrepreneurial risk-taking: Theory and evidence for the U.S," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1479-1505, August.
    14. Ljungqvist, Lars & Sargent, Thomas J, 1995. "Welfare States and Unemployment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 143-160, June.
    15. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    16. Henrekson, Magnus, 2007. "Entrepreneurship and Institutions," Working Paper Series 707, Research Institute of Industrial Economics.
    17. Vesa Kanniainen & Paolo M. Panteghini, 2013. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(2), pages 167-193, June.
    18. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
    19. Tino Sanandaji & Peter T. Leeson, 2013. "Billionaires," Industrial and Corporate Change, Oxford University Press, vol. 22(1), pages 313-337, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Magnus Henrekson & Tino Sanandaji, 2011. "Entrepreneurship and the theory of taxation," Small Business Economics, Springer, vol. 37(2), pages 167-185, September.
    2. Mina Baliamoune-Lutz & Pierre Garello, 2014. "Tax structure and entrepreneurship," Small Business Economics, Springer, pages 165-190.
    3. Peter Ericson & Johan Fall, 2011. "Taxation of closely held corporations – efficiency aspects," International Journal of Microsimulation, International Microsimulation Association, vol. 4(2), pages 27-40.
    4. Pontus Braunerhjelm & Magnus Henrekson, 2013. "Entrepreneurship, institutions, and economic dynamism: lessons from a comparison of the United States and Sweden," Industrial and Corporate Change, Oxford University Press, vol. 22(1), pages 107-130, February.
    5. Magnus Henrekson & Dan Johansson & Mikael Stenkula, 2010. "Taxation, Labor Market Policy and High-Impact Entrepreneurship," Journal of Industry, Competition and Trade, Springer, vol. 10(3), pages 275-296, September.
    6. Haufler, Andreas & Norbäck, Pehr-Johan & Persson, Lars, 2014. "Entrepreneurial innovations and taxation," Journal of Public Economics, Elsevier, vol. 113(C), pages 13-31.

    More about this item

    Keywords

    Taxation; Entrepreneurial Entry; Quality of Entrepreneurial Firms;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:iuiwop:0813. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisabeth Gustafsson). General contact details of provider: http://edirc.repec.org/data/iuiiise.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.