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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 518:
Entrepreneurship: A Weak Link in the Welfare State

Magnus Henrekson ()

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 typically 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 have systematically reduced 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 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; (follow links to similar papers)

JEL-Codes: H30; J20; M13; O12; (follow links to similar papers)

34 pages, November 30, 2002, Revised March 11, 2005

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This paper is published as:
Henrekson, Magnus, (2005), 'Entrepreneurship: A Weak Link in the Welfare State?', Industrial and Corporate Change, Vol. 14, No. 3, pages 437-467



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