Entrepreneurship: A Weak Link in the Welfare State

34 Pages Posted: 29 Jun 2007

See all articles by Magnus Henrekson

Magnus Henrekson

Research Institute of Industrial Economics (IFN)

Abstract

Entrepreneurship is largely ignored or treated in a highly simplified way in endogenous growth theory. Still, it is now widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. This study consists of an in-depth examination of how the supply of productive entrepreneurship is likely to be affected by the kind of tax and welfare arrangements that may prevail in a mature welfare state. Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is shown how key welfare state institutions tend to reduce economic incentives both for opportunity-based and necessity entrepreneurship. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are broadly consistent with the identified structure of payoffs. A number of measures can be implemented to strengthen entrepreneurial incentives within extensive welfare states, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions.

Keywords: Economic growth, Entrepreneurship, Innovation, Swedish model, Welfare state

JEL Classification: M13, J20, H30, O12

Suggested Citation

Henrekson, Magnus, Entrepreneurship: A Weak Link in the Welfare State. Industrial and Corporate Change, Vol. 13, No. 3, 2005. Available at SSRN: https://ssrn.com/abstract=996913

Magnus Henrekson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
Grevgatan 34
Stockholm, SE-10215
Sweden
+46-8-6654502 (Phone)
+46-8-6654599 (Fax)

HOME PAGE: http://www.ifn.se/mh

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