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

86 Pages Posted: 31 Aug 2020

See all articles by Matthew Denes

Matthew Denes

Carnegie Mellon University - Tepper School of Business

showell@stern.nyu.edu Howell

New York University (NYU) - New York University

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 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.

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Suggested Citation

Denes, Matthew and Howell, showell@stern.nyu.edu and Mezzanotti, Filippo and Wang, Xinxin and Xu, Ting, Investor Tax Credits and Entrepreneurship: Evidence from U.S. States (August 2020). NBER Working Paper No. w27751, Available at SSRN: https://ssrn.com/abstract=3683635

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

Showell@stern.nyu.edu Howell

New York University (NYU) - New York University

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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