Entrepreneurship and the Allocation of Government Spending Under Imperfect Markets

25 Pages Posted: 30 Jan 2014

See all articles by Asif Islam

Asif Islam

World Bank - Development Economics Group (DEC)

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Date Written: December 17, 2013

Abstract

Previous studies have established a negative relationship between total government spending and entrepreneurship activity. However, the relationship between the composition of government spending and entrepreneurial activity has been woefully under-researched. We fill this gap in the literature by empirically exploring the relationship between government spending in social and public goods and entrepreneurial activity under the assumption of credit market imperfections. By combining macro-economic government spending data with individual level entrepreneurship data we find a positive relationship between increasing the share of social and public goods at the cost private subsidies and entrepreneurship while confirming a negative relationship between total government consumption and entrepreneurial activity. The implication may be that expansion in total government spending includes huge increases in private subsidies at the cost of social and public goods which are detrimental towards entrepreneurship.

Keywords: Entrepreneurship, Fiscal Policy, Market Failure

JEL Classification: L26, E62, H50, O50

Suggested Citation

Islam, Asif Mohammed, Entrepreneurship and the Allocation of Government Spending Under Imperfect Markets (December 17, 2013). Available at SSRN: https://ssrn.com/abstract=2387310 or http://dx.doi.org/10.2139/ssrn.2387310

Asif Mohammed Islam (Contact Author)

World Bank - Development Economics Group (DEC) ( email )

1818 H Street N.W.
Washington, DC 20433
United States

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