Economic Freedom and Veto Players Jointly Affect Entrepreneurship

Purpose – The purpose of this paper is to explore how the strength of political veto players affects the long-run credibility of economic institutions and how they jointly affect entrepreneurial activity. Design/methodology/approach – The authors employ an annual panel covering 30 OECD countries from 1993 to 2011. Findings – An error correction model identifies a positive and significant short-run effect on self-employment from large government spending at low levels of veto player strength. A static model conversely indicates that smaller government spending is positively associated with entrepreneurship at lower levels of veto player strength in the long run.