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

74 Pages Posted: 8 May 2020

See all articles by Matthew Denes

Matthew Denes

Carnegie Mellon University - Tepper School of Business

Sabrina Howell

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

Filippo Mezzanotti

Kellogg School of Management - Department of Finance

Xinxin Wang

University of North Carolina (UNC) at Chapel Hill - Finance Area

Ting Xu

University of Virginia - Darden School of Business

Date Written: May 1, 2020

Abstract

Previous versions are available at: https://ssrn.com/abstract=3454633 and https://ssrn.com/abstract=3471454.

Angel investor tax credits are commonly used around the world to spur entrepreneurship. Exploiting the staggered implementation of these tax credits in 31 U.S. states, we find that while they increase angel investment, marginal investments flow to relatively low-growth firms. Tax credits induce entry by non-professional, inexperienced investors, and are often received by firm insiders. Consistent with these findings, we show that angel tax credits have no significant effect on state-level entrepreneurial activity or on beneficiary firm outcomes relative to failed applicants. Overall, the results raise concerns about whether investor tax credits achieve their stated goal of promoting high-growth entrepreneurship.

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

JEL Classification: E24, G24, H71, L26

Suggested Citation

Denes, Matthew and Howell, Sabrina and Mezzanotti, Filippo and Wang, Xinxin and Xu, Ting, Investor Tax Credits and Entrepreneurship: Evidence from U.S. States (May 1, 2020). 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 )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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

Sabrina 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

Filippo Mezzanotti

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

Xinxin Wang

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Ting Xu

University of Virginia - Darden School of Business ( email )

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
291
Abstract Views
1,758
rank
112,213
PlumX Metrics