Determinants of the Prevalence of Start-Ups and High-Growth Firms

Abstract

The purpose of this study is to identify key institutional determinants of firm emergence and growth. We do this using various types of data from Sweden. A characterization of a number of institutions and policy measures shows that they are likely to have contributed to an environment that discourages entrepreneurial activity and firm growth. Aspects dealt with include: missing arenas for entrepreneurship in the care sectors and for household-related services, taxation of entrepreneurial income, incentives for wealth accumulation, wage-setting institutions and labor market regulations. Using original data, we provide evidence of a low prevalence of nascent entrepreneurs and a small net employment contribution by high-growth firms. We admit that indisputable evidence for the effects of institutional arrangements is almost impossible to establish. However, the consistency of our theoretical arguments and empirical data makes a strong case for the notion that the Swedish case illustrates the costs of giving too little weight to economic renewal in policy making.

Keywords: Business taxation, Entrepreneurship, High-growth firms, Industrial policy, Nascent entrepreneurs, Swedish model

JEL Classification: M13, L52, J21, H30