Taxes and Venture Capital Support

Christian Keuschnigg and Søren Nielsen

No 1094, CESifo Working Paper Series from CESifo

Abstract: In this paper we set up a model of start-up finance under double moral hazard. Entrepreneurs lack own resources and business experience to develop their ideas. Venture capitalists can provide start-up finance and commercial support. The effort put forth by either agent contributes to the firm’s success, but is not verifiable. As a result, the market equilibrium is biased towards ine.ciently low venture capital support. The capital gains tax becomes especially harmful, as it further impairs advice and causes a first-order welfare loss. Once the capital gains tax is in place, limitations on loss offset may paradoxically contribute to higher quality of venture capital finance and welfare. Subsidies to physical investment in VC-backed startups are detrimental in our framework.

Keywords: venture capital; capital gains taxation; double moral hazard (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-ent and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Journal Article: Taxes and Venture Capital Support (2003)
Journal Article: Taxes and Venture Capital Support (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1094

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