Public Policy for Start-Up Entrepreneurship with Venture Capital and Bank Finance

Posted: 4 Nov 2009

See all articles by Christian Keuschnigg

Christian Keuschnigg

University of St. Gallen – Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Soren Bo Nielson

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: 2005

Abstract

Many of today's successful technology firms started out as venture capital (VC) backed firms.The ventures of today are expected to play a key role in the continuance of technological innovation.Thus, the focus here is on strategic policies aimed at promoting innovative businesses and on the validity of using a microeconomic model as the basis of VC-supported entrepreneurship. Many empirical studies are presented to demonstrate the importance of venture capital as opposed to bank finance.The framework of analysis is discussed, including exploration of the market structure, the formal framework as influenced by factors including demand, bank finance, and venture capital, the key margins, and the public policies.Various policies are analyzed regarding their effectiveness and potential distortions. Based on this analysis, several policies endorsing venture capital support are presented, as are the effects of future policy reform.Considering all the evidence, it is proposed that a selective tax break on capital gains, along with a tax on start-up investment costs for VC backed firms, be provided to act as an incentive for firms to provide consistent VC support.With continued, consistent VC support, firms are more likely to be successful.A discussion of the model-based analysis used in is also provided. (AKP)

Keywords: Firm performance, Taxes, Innovation process, Startups, Tax policies, Venture capital, Debt financing, Bank loans, Public policies, Capital gains

Suggested Citation

Keuschnigg, Christian and Nielson, Soren Bo, Public Policy for Start-Up Entrepreneurship with Venture Capital and Bank Finance (2005). Venture Capital, Entrepreneurship, and Public Policy., Vol. , p. 221-250 2005. Available at SSRN: https://ssrn.com/abstract=1496779

Christian Keuschnigg (Contact Author)

University of St. Gallen – Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Soren Bo Nielson

affiliation not provided to SSRN

No Address Available

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