Entrepreneurial Innovations and Taxation

Andreas Haufler (), Pehr-Johan Norbäck () and Lars Persson

No 896, Working Paper Series from Research Institute of Industrial Economics

Abstract: Many governments promote small businesses for the dual reasons of fostering ‘breakthrough’ innovations and employment growth. In this paper we study the effects of tax and subsidy policies on entrepreneurs’ choice of riskiness of an innovation project and on their mode of commercializing the innovation (market entry versus sale). Limited loss offset provisions in the tax system induce entrepreneurs to choose projects with too little risk and this problem arises primarily when entrepreneurs market their product themselves. When innovations reduce only the fixed costs of production this leads to a fundamental policy trade-off between the declared goals of promoting employment and innovation in small, entrepreneurial firms. When innovations reduce variable production costs, policies to promote small businesses may even be unambiguously harmful.

Keywords: Entrepreneurship; Innovation; Corporate taxes; Firm growth (search for similar items in EconPapers)
JEL-codes: H25 L13 M13 O31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-ino, nep-ipr, nep-ppm, nep-pub, nep-sbm and nep-tid
Date: 2012-01-02
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Related works:
Working Paper: Entrepreneurial innovations and taxation (2012)
Working Paper: Entrepreneurial innovations and taxation (2011)
Working Paper: Entrepreneurial Innovations and Taxation (2011)
Working Paper: Entrepreneurial innovations and taxation (2011)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:iuiwop:0896

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