Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81534
Authors: 
Haufler, Andreas
Norbäck, Pehr-Johan
Persson, Lars
Year of Publication: 
2012
Series/Report no.: 
IFN Working Paper 896
Abstract: 
Many governments promote small businesses for the dual reasons of fostering ‘breakthrough’ innovations and employment growth. In this paper we study the effects of tax and subsidy policies on entrepreneurs’ choice of riskiness of an innovation project and on their mode of commercializing the innovation (market entry versus sale). Limited loss offset provisions in the tax system induce entrepreneurs to choose projects with too little risk and this problem arises primarily when entrepreneurs market their product themselves. When innovations reduce only the fixed costs of production this leads to a fundamental policy trade-off between the declared goals of promoting employment and innovation in small, entrepreneurial firms. When innovations reduce variable production costs, policies to promote small businesses may even be unambiguously harmful.
Subjects: 
Entrepreneurship
Innovation
Corporate taxes
Firm growth
JEL: 
H25
L13
M13
O31
Document Type: 
Working Paper

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