Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits

61 Pages Posted: 27 Oct 2019 Last revised: 28 Oct 2019

Multiple version iconThere are 2 versions of this paper

Date Written: October 17, 2019


Many U.S. states seek to stimulate entrepreneurship through angel tax credits, which subsidize wealthy individuals’ investments in startups. This paper finds that these programs have no measurable effect on local entrepreneurial activity or beneficiary company outcomes, despite increasing some measures of angel activity. This appears to reflect the programs failing to screen out financially unconstrained firms and often being used for tax arbitrage. Over 90 percent of beneficiary companies fall into at least one of three categories: a corporate insider received a tax credit; the company previously raised external equity; or the company is not in a high-growth sector. Notably, at least 33 percent of beneficiary companies include an investor receiving a tax credit who is an executive at the company.

Keywords: Entrepreneurship, tax arbitrage, angel investment

JEL Classification: G24, H26, G14

Suggested Citation

Howell, Sabrina and Mezzanotti, Filippo, Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits (October 17, 2019). Available at SSRN: or

Sabrina Howell (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0913 (Phone)


Filippo Mezzanotti

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

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