Scandinavian Working Papers in Economics
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Research Institute of Industrial Economics (IFN) Working Paper Series

No 813:
Taxation and the Quality of Entrepreneurship

Andrea Asoni () and Tino Sanandaji ()

Abstract: We study the effect of taxation on entrepreneurship, taking into account both the amount of entry and the quality of new ventures. We show that even with risk neutral agents and no tax evasion progressive taxes can increase entrepreneurial entry, while reducing average firm quality. So called "success taxes" increase startup of lower value business ideas by reducing the option value of pursuing better projects. This suggests that the most common measure used in the literature, the likelihood of entry into self-employment, may underestimate the adverse effect of taxation.

Keywords: Taxation; Entrepreneurial Entry; Quality of Entrepreneurial Firms; (follow links to similar papers)

JEL-Codes: H24; H25; L26; (follow links to similar papers)

46 pages, November 13, 2009, Revised October 30, 2013

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This paper is published as:
Asoni, Andrea and Tino Sanandaji, (2014), 'Taxation and the Quality of Entrepreneurship', Journal of Economics, Vol. 113, No. 2, pages 101-123

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