Public funding and non-frontier entrepreneurship

While high-tech and VC-backed firms drive innovation, most employment originates from non-frontier incorporated entrepreneurs. Can public funding alleviate liquidity constraints for these entrepreneurs? We study a Portuguese program that allows unemploymentinsurancerecipientstocollecttheirbenefitsupfronttostartabusiness,providedthey either forgo other work for three years or repay the amount received. Exploiting age-based discontinuities in benefit duration, we estimate an elasticity of incorporated entry with respecttofundingof0.65,morethanthreetimesthatforunincorporatedentry. The response is strongest among higher-wage workers, women, and during periods of financial stress. Consistent with a liquidity channel, program funding also increases firm size, capital intensity, productivity, and access to credit. Each e10,000 of funding generates 1.5 job-years by age 1 and 5.3 job-years by age 8. The evidence suggests that the repayment obligation for re-entering employment does not impose lasting financial hardship.