Discussion Paper Details

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Title: Entrepreneurial innovations and taxation

Author(s): Andreas Haufler, Pehr-Johan Norbäck and Lars Persson

Publication Date: September 2012

Keyword(s): business taxation, innovation and market entry

Programme Area(s): Industrial Organization

Abstract: Stimulating entrepreneurship is high on the policy agenda of many countries. We study the effects of tax policies on entrepreneurs? choice of riskiness (quality) 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 innovating for entry to choose projects with inefficiently little risk, whereas this imperfection does not arise when innovating for sale. Tax systems which systematically favor market entry of entrepreneurs can thus lead to welfare losses due to inefficient quality choices, despite leading to more competition in the product market.

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Bibliographic Reference

Haufler, A, Norbäck, P and Persson, L. 2012. 'Entrepreneurial innovations and taxation'. London, Centre for Economic Policy Research.