Download This PaperInvestor Tax Credits and Entrepreneurship: Evidence from U.S. States
124 Pages Posted: 8 May 2020 Last revised: 9 Aug 2022
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Investor Tax Credits and Entrepreneurship: Evidence from U.S. States
Investor Tax Credits and Entrepreneurship: Evidence from U.S. States
Date Written: August 8, 2022
Abstract
Abstract Angel investor tax credits are used globally to spur high-growth entrepreneurship. Exploiting their staggered implementation in 31 U.S. states, we find that they increase angel investment yet have no significant impact on entrepreneurial activity. Two mechanisms explain these results: Crowding out of alternative financing and low sensitivity of professional investors to tax credits. With a large-scale survey and a stylized model, we show that low responsiveness among professional angels may reflect the fat-tailed return distributions that characterize high-growth startups. The results contrast with evidence that direct subsidies to firms have positive effects, raising concerns about promoting entrepreneurship with investor subsidies.
Keywords: entrepreneurship, investor tax credit, angel financing, government subsidy
JEL Classification: E24, G24, H71, L26
Suggested Citation: Suggested Citation
Matthew Denes (Contact Author)
Carnegie Mellon University - Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
HOME PAGE: http://sites.google.com/site/matthewdenes
Sabrina T Howell
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)
HOME PAGE: http://www.sabrina-howell.com
Ting Xu
University of Toronto, Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
HOME PAGE: http://https://sites.google.com/site/tingxu4