2014

Taxation and the Quality of Entrepreneurship

Reprint No. 2014:44

Author(s): Andrea Asoni and Tino SanandajiYear: 2014 Title: Journal of Economics Volume (No.): 113 (2) Pages: 101–123
Online article (restrictions may apply)
Preliminary version


We study the effect of taxation on entrepreneurship, investigating how taxes affect both the number of start-ups and their average quality. We show theoretically 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” encourage start-ups with 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.


Reference:
Asoni, Andrea and Tino Sanandaji (2014), "Taxation and the Quality of Entrepreneurship". Journal of Economics 113(2), 101–123.

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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