Working Paper: NBER ID: w26884
Authors: Josh Lerner
Abstract: In the dozen years since the Global Financial Crisis, there has been a surge of interest on the part of governments in promoting entrepreneurial activity, largely by providing financing. This essay explores these policies, focusing on financial incentives to entrepreneurs and the intermediaries who fund them. The motivation for these efforts is clear: the well-documented relationships between economic growth, innovation, entrepreneurship and venture capital. Yet despite good intentions, many of these public initiatives have ended in disappointment. I argue that these failures have not simply been a matter of bad luck. Instead, the unfortunate outcomes have reflected the fundamental structural issues that make it difficult for governments to launch sustained successful efforts to promote entrepreneurship over sustained periods. I highlight several critical challenges, and outline two principles that might render these efforts more effective.
Keywords: Entrepreneurship; Government Incentives; Venture Capital; Public Policy
JEL Codes: G18; G24; H81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government financing initiatives (H81) | poor administration and market changes (L11) |
| poor administration and market changes (L11) | substantial financial losses for taxpayers (H20) |
| government funding (H59) | crowd out private investment (F21) |
| crowd out private investment (F21) | venture capitalists wait to see where public funds are allocated (G24) |
| structural issues in government programs (H10) | ineffective outcomes (I12) |
| Saudi government's efforts to promote venture capital (O16) | no significant increases in venture activity (G24) |
| government interventions (H53) | exacerbate boom-and-bust cycles (E32) |
| exacerbate boom-and-bust cycles (E32) | harm innovation (O35) |