Investor Tax Credits and Entrepreneurship: Evidence from U.S. States

85 Pages Posted: 8 May 2020 Last revised: 10 Sep 2020

See all articles by Matthew Denes

Matthew Denes

Carnegie Mellon University - Tepper School of Business

Sabrina T Howell

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Filippo Mezzanotti

Kellogg School of Management - Department of Finance

Xinxin Wang

UCLA Anderson School of Management

Ting Xu

University of Virginia - Darden School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2020

Abstract

Angel investor tax credits are used globally to spur high-growth entrepreneurship. Exploiting the staggered implementation of these tax credits in 31 U.S. states, we find that while they increase angel investment, they have no significant effect on entrepreneurial activity. Tax credits induce entry by inexperienced, local investors and are often used by insiders. A survey of 1,411 angel investors suggests that a “home run” investing approach alongside coordination and information frictions explain low take-up among experienced investors. The results contrast with evidence that direct subsidies to firms have large positive effects, raising concerns about using investor subsidies to promote entrepreneurship.

Keywords: entrepreneurship, investor tax credit, angel financing, government subsidy

JEL Classification: E24, G24, H71, L26

Suggested Citation

Denes, Matthew and Howell, Sabrina T and Mezzanotti, Filippo and Wang, Xinxin and Xu, Ting, Investor Tax Credits and Entrepreneurship: Evidence from U.S. States (August 20, 2020). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3596342 or http://dx.doi.org/10.2139/ssrn.3596342

Matthew Denes (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

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HOME PAGE: http://sites.google.com/site/matthewdenes

Sabrina T Howell

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

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New York, NY NY 10012
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HOME PAGE: http://www.sabrina-howell.com

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Filippo Mezzanotti

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

Xinxin Wang

UCLA Anderson School of Management ( email )

Los Angeles, CA 90095-1481
United States

HOME PAGE: http://https://sites.google.com/view/xinxinwang

Ting Xu

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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