Are Business Start-Ups Liquidity Constrained? Evidence from a Quasi-Experimental Allocation of Housing Wealth in East Germany

52 Pages Posted: 7 Aug 2019

See all articles by Tobias Fuchs

Tobias Fuchs

Ulm University - Department of Mathematics and Economics

Georg Gebhardt

Ludwig Maximilian University of Munich (LMU) - Seminar for Theoretical Economics

Date Written: 2019

Abstract

Are entrepreneurs liquidity constraint? Using quasi-random housing wealth variation resulting from communist era decisions, we argue yes, as we find that wealthier East Germans are more likely to become self-employed after reunification. In the literature, no such strong relationship was found using regional house price changes the US and UK. In these economies, our results suggest, the effects of liquidity constraints are masked by anticipatory savings of the would be self-employed, which was impossible for the East Germans in our sample due to communism.

Keywords: self-employment, financial constraints, wealthy households, starting capital

JEL Classification: J230, L260, G320

Suggested Citation

Fuchs, Tobias and Gebhardt, Georg, Are Business Start-Ups Liquidity Constrained? Evidence from a Quasi-Experimental Allocation of Housing Wealth in East Germany (2019). CESifo Working Paper No. 7765, Available at SSRN: https://ssrn.com/abstract=3432813 or http://dx.doi.org/10.2139/ssrn.3432813

Tobias Fuchs (Contact Author)

Ulm University - Department of Mathematics and Economics ( email )

Helmholzstrasse
Ulm, D-89081
Germany

Georg Gebhardt

Ludwig Maximilian University of Munich (LMU) - Seminar for Theoretical Economics ( email )

Munich, 80539
Germany

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