Working Paper: CEPR ID: DP2626
Authors: Christian Keuschnigg; Soren Bo Nielsen
Abstract: The Paper studies the effects of tax policy on venture capital activity. Entrepreneurs pursue a single high-risk project each but have no own resources. Financiers provide equity finance. They must structure the entrepreneur?s profit share and base salary to assure their incentives for full effort. In addition to providing equity finance, venture capitalists assist with valuable business advice to enhance survival rates. Within a general equilibrium framework with a traditional and an entrepreneurial sector, the Paper investigates the effects of taxes on the equilibrium level of entrepreneurship and managerial advice. It considers differential wage and capital income taxes, a comprehensive income tax, incomplete loss offset, and progressive taxation, as well as investment and output subsidies to the entrepreneurial sector.
Keywords: entrepreneurship; moral hazard; subsidies; taxes; venture capital
JEL Codes: D82; G24; H24; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital income tax (H24) | managerial advice (M54) |
| capital income tax (H24) | number of entrepreneurs (L26) |
| wage tax (J31) | managerial advice (M54) |
| wage tax (J31) | number of entrepreneurs (L26) |
| limiting loss offsets (G33) | investment costs (G31) |
| limiting loss offsets (G33) | startup entrepreneurship (M13) |
| limiting loss offsets (G33) | managerial advice (M54) |
| investment subsidies (H23) | entrepreneurial activity (L26) |
| output subsidies (H23) | entrepreneurial activity (L26) |