Entrepreneurial innovations and taxation

Andreas Haufler, Pehr-Johan Norbaeck and Lars Persson
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Pehr-Johan Norbaeck: Research Institute of Industrial Economics, Stockholm
Authors registered in the RePEc Author Service: Pehr-Johan Norbäck

No 1122, Working Papers from Oxford University Centre for Business Taxation

Abstract: Many governments promote small businesses for the dual reasons of fostering `break-through' 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.

JEL-codes: H25 L13 M13 O31 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ent, nep-ino, nep-ipr, nep-pr~ and nep-ppm
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Related works:
Journal Article: Entrepreneurial innovations and taxation (2014)
Working Paper: Entrepreneurial innovations and taxation (2012)
Working Paper: Entrepreneurial Innovations and Taxation (2012)
Working Paper: Entrepreneurial Innovations and Taxation (2011)
Working Paper: Entrepreneurial innovations and taxation (2011)
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