Taxation of a Venture Capitalist with a Portfolio of Firms

Posted: 9 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)

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Date Written: 2004

Abstract

This study starts from the premise that youngentrepreneurial firms are an important source of innovation and growth,andlooks at ways in which tax policy can contribute to a more activestyle of capital investments. An optimal tax policy is derived, moving theprivate equilibrium toward a first best allocation. The article presents a model of a venture capital (VC)fund with aportfolio of firms, arguing that VC support and the number of firms in a VCportfolio are too low in private equilibrium. The findings indicate that theoptimal tax policy is a performance related revenue subsidy, or negativecapital gains tax, combined with a non-performance related tax on start-upinvestment cost. It is concluded that the optimal policy calls for a positivestart-up tax combined with a revenue subsidy.(CBS)

Keywords: Taxes, Capital investments, Venture capital, Public policies, Tax policies, Equilibrium, Revenue subsidies, Venture capital portfolios, Moral hazard problem, Capital gains taxes

Suggested Citation

Keuschnigg, Christian, Taxation of a Venture Capitalist with a Portfolio of Firms (2004). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1500930

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

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