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Public Policy and Business Creation in the United States

Douglas J. Cumming

York University - Schulich School of Business

Dan Li

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, G24

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Date posted: August 7, 2009 ; Last revised: June 15, 2010

Suggested Citation

Cumming, Douglas J. and Dan Li, Public Policy and Business Creation in the United States (November 23, 2009). Available at SSRN: http://ssrn.com/abstract=1443508 or http://dx.doi.org/10.2139/ssrn.1443508

Contact Information

Douglas J. Cumming (Contact Author)
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
HOME PAGE: http://www.venturecapitalprivateequitycontracting.com/
Dan Li
The School of Economics and Finance, University of Hong Kong ( email )
8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
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