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Entrepreneurs, culture and productivity

Gonzalo Olcina (), Elena Mas Tur () and Luisa Escriche ()
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Gonzalo Olcina: ERICES and University of Valencia
Elena Mas Tur: Eindhoven University of Technology
Luisa Escriche: ERICES and University of Valencia

No 117, Discussion Papers in Economic Behaviour from University of Valencia, ERI-CES

Abstract: This paper contributes to explain the persistence of differences in levels of entrepreneurship within and across countries. We analyse in a dynamic setting the mutual relationship among the distribution of preferences for entrepreneurship in the population, public administration efficiency, and entrepreneurial productivity when preferences and productivity evolve over time. Individuals with entrepreneurial preferences start their own business, while the other individuals join the public and traditional sectors. In each generation, individuals vote on the taxes the entrepreneurs will pay. Under a balanced public budget, the collected taxes are used to pay the civil servants' wages. The effort of civil servants captures the effort made to generate an efficient normative and regulatory environment, and it will affect the probability of success of entrepreneurship. The dynamic of entrepreneurial productivity is determined by the relative proportion of entrepreneurial and non-entrepreneurial individuals among generations. We show that an economy can reach two different long-run equilibria: a traditional equilibrium, with a low proportion of entrepreneurs, low productivity, high taxes and an ineffcient Administration and an entrepreneurial equilibrium with a high proportion of entrepreneurs, a higher productivity and lower taxes but enough to implement an efficient Administration. Our main result is that the equilibrium achieved completely depends on the tax policy followed by the different generations. If decisions are made by majority voting in a myopic way, then the initial conditions of the society become crucial. This result explains persistence: an economy evolves around similar levels of entrepreneurship unless some reforms are implemented.

Keywords: Entrepreneurship; Cultural Transmission; Entrepreneurial Preferences; Tax policy; Public Administration efficiency (search for similar items in EconPapers)
JEL-codes: J62 L26 M13 J62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent and nep-lab
Date: 2017-07
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