Public Policy and Business Creation in the United States
Douglas J. Cumming
York University - Schulich School of Business
The School of Economics and Finance, University of Hong Kong
November 23, 2009
This paper empirically examines business starts and deaths in relation to US public policy. Controlling for economic conditions, bankruptcy laws, venture capital investment and other factors, and using the most recent (as at 07/2009) US state level census data which covers the 1995-2005(Q1) period, we find robust evidence of more business starts with 1-4 employees in states with fewer government transfers, lower taxation, and lower minimum wages. Transfers and subsidies are associated with fewer business deaths. The data indicate business starts with over 10 employees are unrelated to government subsidies and taxation but do show a strong negative relation with labor frictions. Apart from the quantity of business creation, proxies for the quality of entrepreneurial activities show government policy in a more favorable light in terms of a positive effect associated with government transfers and subsidies.
Number of Pages in PDF File: 42
Keywords: Entrepreneurship, Taxation, Labor Law, Bankruptcy, Public Policy
JEL Classification: L26, L50, K31, K35, G24working papers series
Date posted: August 7, 2009 ; Last revised: June 15, 2010
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