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Entrepreneurial innovations and taxation

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  • Haufler, Andreas
  • Norbäck, Pehr-Johan
  • Persson, Lars

Abstract

In many countries entrepreneurship is promoted through tax reductions for small businesses and by various government support schemes. We analyze the effects of such policies to subsidize small businesses in a setting where both the risk-return characteristics of the selected innovation project and the mode of commercialization chosen by entrepreneurs (market entry versus sale to an incumbent firm) are endogenous. We show that government programs to support small businesses foster market entry by entrepreneurs but, at the same time, give an incentive to choose low risk projects, due to the existence of limited loss o®set provisions. This points to a basic trade-off be- tween the goals of raising competition in technology-intensive markets and the desire of governments to foster risky `breakthrough' innovations.

Suggested Citation

  • Haufler, Andreas & Norbäck, Pehr-Johan & Persson, Lars, 2011. "Entrepreneurial innovations and taxation," Discussion Papers in Economics 12245, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:12245
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    Cited by:

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    3. Trey Malone & Antonios M. Koumpias & Per L. Bylund, 2019. "Entrepreneurial response to interstate regulatory competition: evidence from a behavioral discrete choice experiment," Journal of Regulatory Economics, Springer, vol. 55(2), pages 172-192, April.
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    5. Norman Gemmell & Richard Kneller & Danny McGowan & Ismael Sanz & José F. Sanz‐Sanz, 2018. "Corporate Taxation and Productivity Catch‐Up: Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(2), pages 372-399, April.
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    7. Mardan, Mohammed & Stimmelmayr, Michael, 2018. "Tax revenue losses through cross-border loss offset: An insurmountable hurdle for formula apportionment?," European Economic Review, Elsevier, vol. 102(C), pages 188-210.
    8. Henkel, Joachim & Rønde, Thomas & Wagner, Marcus, 2015. "And the winner is—Acquired. Entrepreneurship as a contest yielding radical innovations," Research Policy, Elsevier, vol. 44(2), pages 295-310.
    9. Maribel Guerrero & David Urbano, 2019. "Effectiveness of technology transfer policies and legislation in fostering entrepreneurial innovations across continents: an overview," The Journal of Technology Transfer, Springer, vol. 44(5), pages 1347-1366, October.
    10. Petutschnig, Matthias, 2017. "Future orientation and taxes: Evidence from big data," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 29(C), pages 14-31.
    11. Sharma, Rishi R. & Slemrod, Joel & Stimmelmayr, Michael, 2023. "Tax losses and ex-ante offshore transfer of intellectual property," Journal of Public Economics, Elsevier, vol. 226(C).
    12. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2022. "Risky Business: Venture Capital, Pivoting and Scaling," Working Paper Series 1444, Research Institute of Industrial Economics, revised 15 Apr 2024.
    13. Diego d’Andria & Dimitrios Pontikakis & Agnieszka Skonieczna, 2018. "Towards a European R&D incentive? An assessment of R&D provisions under a common corporate tax base," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 27(5-6), pages 531-550, August.
    14. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    15. Hans Gersbach & Ulrich Schetter & Maik T Schneider, 2019. "Taxation, Innovation and Entrepreneurship," The Economic Journal, Royal Economic Society, vol. 129(620), pages 1731-1781.
    16. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2022. "Tax enforcement and corporate employment: Evidence from a quasi-natural experiment in China," China Economic Review, Elsevier, vol. 73(C).
    17. Heyman, Fredrik & Norbäck, Pehr-Johan & Persson, Lars, 2015. "The Turnaround of Swedish Industry: Reforms, Firm Diversity and Job and Productivity Dynamics," Working Paper Series 1079, Research Institute of Industrial Economics.
    18. Pehr-Johan Norbäck & Lars Persson, 2024. "Why generative AI can make creative destruction more creative but less destructive," Small Business Economics, Springer, vol. 63(1), pages 349-377, June.
    19. Li, Shengquan & Bai, Tao, 2024. "The impact of tax reform on corporate green transformation — Evidence based on the value-added tax retained rebate," Finance Research Letters, Elsevier, vol. 60(C).
    20. Facundo Albornoz & Antonio Cabrales & Esther Hauk, 2019. "Occupational Choice with Endogenous Spillovers," The Economic Journal, Royal Economic Society, vol. 129(621), pages 1953-1970.
    21. Danzer, Alexander M. & Feuerbaum, Carsten & Gaessler, Fabian, 2024. "Labor supply and automation innovation: Evidence from an allocation policy," Journal of Public Economics, Elsevier, vol. 235(C).
    22. Guo, Fenghua & Huo, Peiyun & Song, Hui & Zhang, Duolei & Zhou, Lei, 2024. "Does tax symmetry improve corporate innovation investment? Evidence from the change policy of loss carrying forward period in China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 591-602.
    23. Norbäck, Pehr-Johan & Persson, Lars, 2023. "Why Big Data Can Make Creative Destruction More Creative – But Less Destructive," Working Paper Series 1454, Research Institute of Industrial Economics.
    24. Dinkel, Andreas, 2015. "Tax attractiveness and the allocation of risk within multinationals," arqus Discussion Papers in Quantitative Tax Research 189, arqus - Arbeitskreis Quantitative Steuerlehre.
    25. Ronald B. Davies & Yutao Han & Kate Hynes & Yong Wang, 2020. "Competition in Taxes and IPR," Working Papers 202019, School of Economics, University College Dublin.

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    More about this item

    Keywords

    business taxation; innovation; market entry;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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