Phasing Out an Inefficient Tax Credit

28 Pages Posted: 1 Nov 2008

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Date Written: October 30, 2008

Abstract

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

Cumming, Douglas J. and Johan, Sofia A., Phasing Out an Inefficient Tax Credit (October 30, 2008). Available at SSRN: https://ssrn.com/abstract=1292499 or http://dx.doi.org/10.2139/ssrn.1292499

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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