Tax Policy, Venture Capital and Entrepreneurship

43 Pages Posted: 29 Jan 2001

See all articles by Christian Keuschnigg

Christian Keuschnigg

University of St. Gallen – Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Soren Bo Nielsen

Copenhagen Business School - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2000

Abstract

The Paper studies the effects of tax policy on venture capital activity. Entrepreneurs pursue a single high-risk project each but have no own resources. Financiers provide equity finance. They must structure the entrepreneur's profit share and base salary to assure their incentives for full effort. In addition to providing equity finance, venture capitalists assist with valuable business advice to enhance survival rates. Within a general equilibrium framework with a traditional and an entrepreneurial sector, the Paper investigates the effects of taxes on the equilibrium level of entrepreneurship and managerial advice. It considers differential wage and capital income taxes, a comprehensive income tax, incomplete loss offset, and progressive taxation, as well as investment and output subsidies to the entrepreneurial sector.

Keywords: Entrepreneurship, moral hazard, subsidies, taxes, venture capital

JEL Classification: D82, G24, H24, H25

Suggested Citation

Keuschnigg, Christian and Nielsen, Soren Bo, Tax Policy, Venture Capital and Entrepreneurship (November 2000). CEPR Discussion Paper No. 2626. Available at SSRN: https://ssrn.com/abstract=258057

Christian Keuschnigg (Contact Author)

University of St. Gallen – Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Soren Bo Nielsen

Copenhagen Business School - Department of Economics ( email )

Porcelænshaven 16 A, 1
Frederiksberg C, DK-2000
Denmark

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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