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Public funding and non-frontier entrepreneurship

Author

Listed:
  • Miguel A. Ferreira
  • Marta C. Lopes
  • Francisco Queiro
  • Hugo Reis

Abstract

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.

Suggested Citation

  • Miguel A. Ferreira & Marta C. Lopes & Francisco Queiro & Hugo Reis, 2025. "Public funding and non-frontier entrepreneurship," Nova SBE Working Paper Series wp647, Universidade Nova de Lisboa, Nova School of Business and Economics.
  • Handle: RePEc:unl:unlfep:wp647
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    References listed on IDEAS

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    More about this item

    Keywords

    Entrepreneurship; Financial constraints; Unemployment insurance; Public funding;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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