Public funding and non-frontier entrepreneurship

Miguel A. Ferreira, Marta Lopes, Francisco Queiró and Hugo Reis

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: While high-tech and VC-backed firms drive innovation, most employment originates from non-frontier incorporated entrepreneurs. Can public funding alleviate liquidity constraints for these entrepreneurs? We study a Portuguese program that allows unemploymentinsurancerecipientstocollecttheirbenefitsupfronttostartabusiness,providedthey either forgo other work for three years or repay the amount received. Exploiting age-based discontinuities in benefit duration, we estimate an elasticity of incorporated entry with respecttofundingof0.65,morethanthreetimesthatforunincorporatedentry. The response is strongest among higher-wage workers, women, and during periods of financial stress. Consistent with a liquidity channel, program funding also increases firm size, capital intensity, productivity, and access to credit. Each e10,000 of funding generates 1.5 job-years by age 1 and 5.3 job-years by age 8. The evidence suggests that the repayment obligation for re-entering employment does not impose lasting financial hardship.

Keywords: Entrepreneurship; Financial constraints; Unemployment insurance; Public funding (search for similar items in EconPapers)
JEL-codes: G38 H81 J24 J65 L26 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2025
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp647

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