Entrepreneurial Decisions and Liquidity Constraints

Posted: 17 Nov 2009

See all articles by Douglas Holtz-Eakin

Douglas Holtz-Eakin

affiliation not provided to SSRN

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA); Georgetown University - Department of Economics

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 1994

Abstract

Examines sole proprietorships and the extent to which the decision to become an entrepreneur is influenced by inheritance size - i.e., access to capital. A group of approximately 3,000 people were identified through US Internal Revenue Service data, including estate tax returns to identify those who had received inheritances in 1982 or 1983, and personal income tax returns for 1981 and 1985, to further focus on which of the initial group did not have Schedule C business income in 1981. During the 1981-1985 period, 20% of the wage earners became sole proprietors, as defined by filing of a Schedule C business income tax form in 1985, but not in 1981. Analysis by inheritance size and individual characteristics finds that the size of the inheritance has a significant impact both on an individual's decision to become an entrepreneur and on the amount of capital used in the new enterprise. As well, the probability of becoming an entrepreneur generally decreases with age and with the number of children an individual has. This research provdes a unique dataset to complement earlier research that examines liquidity constraints for corporations. (SFL)

Keywords: Inheritance, Liquidity, Access to capital, Individual traits, Sole proprietorships, Risk orientation, Family background, Financial constraints, Background (biographical)

Suggested Citation

Holtz-Eakin, Douglas and Joulfaian, David and Rosen, Harvey S., Entrepreneurial Decisions and Liquidity Constraints (1994). RAND Journal of Economics, Vol. 25, Issue 2, p. 334-347 1994. Available at SSRN: https://ssrn.com/abstract=1505217

Douglas Holtz-Eakin

affiliation not provided to SSRN

David Joulfaian

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Georgetown University - Department of Economics ( email )

37th St NW & O St NW
Washington, DC 20007
United States

Harvey S. Rosen

Princeton University - Department of Economics ( email )

001 Fisher Hall
Princeton, NJ 08544
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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