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.

Elgar Companion to

Social Capital and Health

Martin Ljunge okt 2018.jpg

Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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