Entrepreneurship and the allocation of government spending under imperfect markets

Asif Islam

No 7163, Policy Research Working Paper Series from The World Bank

Abstract: Previous studies have established a negative relationship between total government spending and entrepreneurship activity. However, the relationship between the composition of government spending and entrepreneurial activity has been woefully under-researched. This paper fills this gap in the literature by empirically exploring the relationship between government spending on social and public goods and entrepreneurial activity under the assumption of credit market imperfections. By combining macroeconomic government spending data with individual-level entrepreneurship data, the analysis finds a positive relationship between increasing the share of social and public goods at the cost of private subsidies and entrepreneurship while confirming a negative relationship between total government consumption and entrepreneurial activity. The implication may be that expansion of total government spending includes huge increases in private subsidies, at the cost of social and public goods, and is detrimental for entrepreneurship.

Keywords: Public Sector Economics; Debt Markets; Economic Theory&Research; Economic Stabilization; Access to Finance (search for similar items in EconPapers)
Date: 2015-01-01
New Economics Papers: this item is included in nep-ent
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Citations: View citations in EconPapers (19)

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Journal Article: Entrepreneurship and the Allocation of Government Spending Under Imperfect Markets (2015)
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