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Entrepreneurship and State Public Policy


  • Steven F. Kreft

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Elham Mafi-Kreft

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)


Many state and local governments have focused on enacting policies to promote entrepreneurship in an effort to enhance economic growth. This paper will test the relationship between entrepreneurial activity and state economic freedom in a Granger causality framework. We build a panel data set of freedom scores and entrepreneurial activity measures within the fifty US states from 1981 to 2003, and our results show that, as a whole, economic freedom causes entrepreneurship. However, we find evidence that once entrepreneurs are in place, they increase the size of government spending, which is contradictory to economic freedom.

Suggested Citation

  • Steven F. Kreft & Elham Mafi-Kreft, 2007. "Entrepreneurship and State Public Policy," Working Papers 2007-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2007-03

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    References listed on IDEAS

    1. 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.
    2. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
    3. 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.
    4. W. Kenn Farr & Richard A. Lord & J. Larry Wolfenbarger, 1998. "Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 247-262, Fall.
    5. Donald Bruce & Mohammed Mohsin, 2006. "Tax Policy and Entrepreneurship: New Time Series Evidence," Small Business Economics, Springer, vol. 26(5), pages 409-425, June.
    6. Magnus Blomström & Robert E. Lipsey & Mario Zejan, 1996. "Is Fixed Investment the Key to Economic Growth?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 269-276.
    7. repec:cto:journl:v:18:y:1998:i:2:p: is not listed on IDEAS
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    More about this item


    entrepreneurship; public Policy; economic freedom;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H4 - Public Economics - - Publicly Provided Goods
    • H1 - Public Economics - - Structure and Scope of Government

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