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Taxation of a Venture Capitalist With a Portfolio of Firms

Christian Keuschnigg

University of St. Gallen Department of Economics working paper series 2003 from Department of Economics, University of St. Gallen

Abstract: Venture capitalists not only finance but also advise and thereby add value to young innovative firms. The prospects of venture capital backed firms thus depend on joint efforts of entrepreneurs and informed venture capitalists, and are subject to double moral hazard. In financing a portfolio of firms, venture capitalists additionally face a trade-off between the number of companies and the amount of managerial advice allocated to each individual venture. The paper argues that managerial support and the number of portfolio firms are inefficiently low in private equilibrium. An optimal tax policy is derived that succeeds to move the private equilibrium towards a first best allocation.

Keywords: Venture capital; double moral hazard; optimal taxation. (search for similar items in EconPapers)
JEL-codes: D82 G24 H21 H25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-pub
Date: 2003-11
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Related works:
Journal Article: Taxation of a venture capitalist with a portfolio of firms (2004) Downloads
Working Paper: Taxation of a Venture Capitalist with a Portfolio of Firms (2002) Downloads
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