DP4097 Taxation and Venture Capital-Backed Entrepreneurship

Author(s): Christian Keuschnigg, Soren Bo Nielsen
Publication Date: October 2003
Keyword(s): double moral hazard, entrepreneurship, taxes, venture capital
JEL(s): D82, G24, H24, H25
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4097

In recent years, venture capital has increasingly become a factor in the financing of new firms. We examine how the value of mature firms determines the incentives of entrepreneurs to start up new firms and of venture capitalists to finance and advise them. We examine how capital gains taxes as well as subsidies to start-up costs of new firms affect venture capital-backed entrepreneurship. We also argue that dividend and capital gains taxes on mature firms have important consequences for start-up firms as well.