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Entrepreneurship, Windfall Gains and Financial Constraints: The Case of Germany

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  • Dorothea Schäfer
  • Oleksandr Talavera

Abstract

In this paper we investigate the link between entrepreneurship and financial constraints. We develop a dynamic partial equilibrium model of an individual utility maximization that predicts that the person is more likely to start her business when financial constraints are eased. We test this hypothesis using German Socio-Economic Panel data covering the periods 2000 - 2002 and measure release from financial constraints by windfall gains. The estimates confirm that the individual has higher propensity to start her business when she gets windfall gains. Furthermore, there are stronger effects for persons that have sufficient, but not very high levels of income and abilities.

Suggested Citation

  • Dorothea Schäfer & Oleksandr Talavera, 2005. "Entrepreneurship, Windfall Gains and Financial Constraints: The Case of Germany," Discussion Papers of DIW Berlin 480, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp480
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    2. Frank M. Fossen & Viktor Steiner, 2006. "Income Taxes and Entrepreneurial Choice: Empirical Evidence from Germany," Discussion Papers of DIW Berlin 582, DIW Berlin, German Institute for Economic Research.
    3. Demyanyk, Yuliya, 2008. "U.S. banking deregulation and self-employment: A differential impact on those in need," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 165-178.

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    More about this item

    Keywords

    Entrepreneurship; Windfall gains; Financial constraints;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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