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Investor Tax Credits and Entrepreneurship: Evidence from U.S. States

Matthew R. Denes, Sabrina T. Howell, Filippo Mezzanotti, Xinxin Wang and Ting Xu

No 27751, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Angel investor tax credits are used globally to spur high-growth entrepreneurship. Exploiting the staggered implementation of these tax credits in 31 U.S. states, we find that while they increase angel investment, they have no significant effect on entrepreneurial activity. Tax credits induce entry by inexperienced, local investors and are often used by insiders. A survey of 1,411 angel investors suggests that a “home run” investing approach alongside coordination and information frictions explain low take-up among experienced investors. The results contrast with evidence that direct subsidies to firms have large positive effects, raising concerns about using investor subsidies to promote entrepreneurship.

JEL-codes: G0 G14 G28 H0 H25 O3 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-pbe, nep-pub, nep-sbm and nep-tid
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