Phasing Out an Inefficient Tax Credit
28 Pages Posted: 1 Nov 2008
Date Written: October 30, 2008
In 2005, the Government of Ontario announced the phase out of the Labour Sponsored Venture Capital Corporation (LSVCC) tax credit, which will be become effective in 2011. Some media attention has suggested this might lead to difficulty for Ontario entrepreneurs and emerging companies in raising capital. This study presents evidence from Ontario innovative healthcare companies that capital raising concerns are not related to the phasing out of the LSVCC tax credit, and this evidence is consistent with evidence of extreme underperformance of LSVCCs. However, amongst companies currently funded by LSVCCs, there is significant concern about the phase out of the tax credit, which can be explained by LSVCC shareholder agreements. Policymakers should account for companies currently funded by LSVCCs to efficiently facilitate the phase out of the tax credit.
Keywords: Canadian Tax Policy, Entrepreneurship, Venture Capital
JEL Classification: G24, G28, H25, H71
Suggested Citation: Suggested Citation