Entrepreneurship Dynamics, Market Size and Fiscal Policy

Richard Kneller and Danny McGowan ()
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Danny McGowan: Bangor Business School

No 11003, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

Abstract: The current recession has highlighted the potentially severe impact of shrinkages in demand and fiscal austerity upon firm entry and survival. Using data covering broad manufacturing and service sectors in 17 countries this paper investigates how changes in fiscal policy and market size affect rates of firm entry and exit. We find that reductions in fiscal expenditure are associated with higher rates of entrepreneurship and that there are differences between more disaggregated policy factors such as government consumption, investment and taxation. Quantitatively more important is market size. In the immediate aftermath of a 5 percent reduction in market size the rate of entry falls by approximately 0.25 percentage points while the exit rate rises by a similar amount. Although small in comparison with average rates of entry and exit this corresponds to a loss of 17,500 firms in the United States. Changes in fiscal expenditure are estimated to have a slightly smaller effect.

Keywords: Entry; Exit; Demand; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: D22 E32 H11 H32 L26 (search for similar items in EconPapers)
Date: 2011-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Entrepreneurship Dynamics, Market Size and Fiscal Policy (2011)
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