Entrepreneurship and the Allocation of Government Spending Under Imperfect Markets

26 Pages Posted: 20 Apr 2016

See all articles by Asif Islam

Asif Islam

World Bank - Development Economics Group (DEC)

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Date Written: January 1, 2015

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. This paper fills this gap in the literature by empirically exploring the relationship between government spending on social and public goods and entrepreneurial activity under the assumption of credit market imperfections. By combining macroeconomic government spending data with individual-level entrepreneurship data, the analysis finds a positive relationship between increasing the share of social and public goods at the cost of private subsidies and entrepreneurship while confirming a negative relationship between total government consumption and entrepreneurial activity. The implication may be that expansion of total government spending includes huge increases in private subsidies, at the cost of social and public goods, and is detrimental for entrepreneurship.

Keywords: Private Sector Economics, Economic Adjustment and Lending, Technology Industry, Macro-Fiscal Policy, Marketing, Public Finance Decentralization and Poverty Reduction, Technology Innovation, Private Sector Development Law, Public Sector Economics

Suggested Citation

Islam, Asif Mohammed, Entrepreneurship and the Allocation of Government Spending Under Imperfect Markets (January 1, 2015). World Bank Policy Research Working Paper No. 7163. Available at SSRN: https://ssrn.com/abstract=2549985

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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