Taxation and the Quality of Entrepreneurship

Andrea Asoni and Tino Sanandaji

No 813, Working Paper Series from Research Institute of Industrial Economics

Abstract: We study the effect of taxation on entrepreneurship, taking into account both the amount of entry and the quality of new ventures. We show that even with risk neutral agents and no tax evasion progressive taxes can increase entrepreneurial entry, while reducing average firm quality. So called "success taxes" increase startup of lower value business ideas by reducing the option value of pursuing better projects. This suggests that the most common measure used in the literature, the likelihood of entry into self-employment, may underestimate the adverse effect of taxation.

Keywords: Taxation; Entrepreneurial Entry; Quality of Entrepreneurial Firms (search for similar items in EconPapers)
JEL-codes: H24 H25 L26 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-11-13, Revised 2013-10-30
New Economics Papers: this item is included in nep-ent, nep-pub and nep-sbm
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Citations: View citations in EconPapers (12)

Published as Asoni, Andrea and Tino Sanandaji, 'Taxation and the Quality of Entrepreneurship' in Journal of Economics , 2014, pages 101-123.

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Journal Article: Taxation and the quality of entrepreneurship (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0813

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