Start-up Costs, Taxes and Innovative Entrepreneurship

Pourya Darnihamedani, Joern Block, Jolanda Hessels and Aram Simonyan
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Pourya Darnihamedani: Erasmus University Rotterdam, the Netherlands
Jolanda Hessels: Erasmus University Rotterdam, the Netherlands
Aram Simonyan: National Academy of Science of the Republic of Armenia, Yerevan, Republic of Armenia

No 15-013/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Prior research suggests that start-up costs and taxes negatively influence entry into entrepreneurship. Yet, no distinction is made regarding the type of entrepreneurship, particularly innovative versus non-innovative entrepreneurship. Start-up costs, being one-off costs, may reduce the entry of entrepreneurs whose ideas are not very promising, thus increasing the proportion of innovative entrepreneurs. Taxes, being recurring costs, may reduce the “prize” of innovation and the profit from entrepreneurship, discouraging individuals with innovative business ideas from becoming entrepreneurs. Analyzing a dataset of 632,116 individuals, including 43,223 entrepreneurs from 53 countries, we can confirm our main predictions. Our paper contributes to the discussion on how governmental regulation costs and taxes influence innovative entrepreneurship and technological deve lopment.

Keywords: Innovative entrepreneurship; corporate taxes; personal income taxes; start-up costs; entrepreneurial profit (search for similar items in EconPapers)
JEL-codes: H24 H25 L26 L51 O31 (search for similar items in EconPapers)
Date: 2015-01-23
New Economics Papers: this item is included in nep-ent, nep-ind, nep-ino, nep-pbe, nep-pub and nep-sbm
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