Entrepreneurial Innovations and Taxation
49 Pages Posted: 2 Oct 2012
There are 3 versions of this paper
Entrepreneurial Innovations and Taxation
Entrepreneurial Innovations and Taxation
Date Written: September 2012
Abstract
Stimulating entrepreneurship is high on the policy agenda of many countries. We study the effects of tax policies on entrepreneurs choice of riskiness (quality) of an innovation project, and on their mode of commercializing the innovation (market entry versus sale). Limited loss offset provisions in the tax system induce entrepreneurs innovating for entry to choose projects with inefficiently little risk, whereas this imperfection does not arise when innovating for sale. Tax systems which systematically favor market entry of entrepreneurs can thus lead to welfare losses due to inefficient quality choices, despite leading to more competition in the product market.
Keywords: business taxation, innovation, market entry
JEL Classification: H25, L13, M13, O31
Suggested Citation: Suggested Citation
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