Taxation and the Quality and Quantity of Entrepreneurial Firms

37 Pages Posted: 14 Nov 2009

See all articles by Andrea Asoni

Andrea Asoni

Research Institute of Industrial Economics (IFN)

Tino Sanandaji

Research Institute of Industrial Economics (IFN)

Date Written: November 13, 2009

Abstract

We study the effect of taxation on entrepreneurship, taking into account both the amount of entry and the quality of new ventures. We show that even with risk neutral agents and no tax evasion progressive taxes can increase entrepreneurial entry, while reducing average firm quality. So called "success taxes" increase start-up of lower value business ideas by reducing the option value of pursuing better projects. This suggests that the most common measure used in the literature, the likelihood of entry into self-employment, may underestimate the adverse effect of taxation.

Keywords: Taxation, Entrepreneurial Entry, Quality of Entrepreneurial Firms

JEL Classification: H24, H25, L26

Suggested Citation

Asoni, Andrea and Sanandaji, Tino, Taxation and the Quality and Quantity of Entrepreneurial Firms (November 13, 2009). IFN Working Paper No. 813, Available at SSRN: https://ssrn.com/abstract=1505545 or http://dx.doi.org/10.2139/ssrn.1505545

Andrea Asoni (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Tino Sanandaji

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
0723230694 (Phone)

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