Working Paper No. 813

Taxation and the Quality of Entrepreneurship

Published: November 13, 2009, revised July, 2011 and October 2013Pages: 46Keywords: Taxation; Entrepreneurial Entry; Quality of Entrepreneurial FirmsJEL-codes: H24; H25; L26
Published version

Taxation and the Quality of Entrepreneurship Andrea Asoni and Tino Sanandaji


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.

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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