Entrepreneurial Innovations and Taxation

43 Pages Posted: 3 Jun 2011

See all articles by Andreas Haufler

Andreas Haufler

University of Munich - Seminar for Economic Policy; CESifo (Center for Economic Studies and Ifo Institute)

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: May 31, 2011

Abstract

In many countries entrepreneurship is promoted through tax reductions for small businesses and by various government support schemes. We analyze the effects of such policies to subsidize small businesses in a setting where both the risk-return characteristics of the selected innovation project and the mode of commercialization chosen by entrepreneurs (market entry versus sale to an incumbent firm) are endogenous. We show that government programs to support small businesses foster market entry by entrepreneurs but, at the same time, give an incentive to choose low risk projects, due to the existence of limited loss offset provisions. This points to a basic trade-off between the goals of raising competition in technology-intensive markets and the desire of governments to foster risky ‘breakthrough’ innovations.

Keywords: business taxation, innovation, market entry

JEL Classification: H250, L130, M130, O310

Suggested Citation

Haufler, Andreas and Norbäck, Pehr-Johan and Persson, Lars, Entrepreneurial Innovations and Taxation (May 31, 2011). CESifo Working Paper Series No. 3473, Available at SSRN: https://ssrn.com/abstract=1855952

Andreas Haufler (Contact Author)

University of Munich - Seminar for Economic Policy ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

HOME PAGE: http://www.ecpol.vwl.uni-muenchen.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN) ( email )

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

Lars Persson

Research Institute of Industrial Economics (IFN) ( email )

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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