nep-ent New Economics Papers
on Entrepreneurship
Issue of 2006‒05‒27
nine papers chosen by
Marcus Dejardin
Facultes Universitaires Notre-Dame de la Paix

  1. Income Taxes and Entrepreneurial Choice : Empirical Evidence from Germany By Frank M. Fossen; Viktor Steiner
  2. Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden By Engström, Per; Holmlund, Bertil
  3. The “Continuous Collaborators” in Italy. Hybrids between Employment and Self-employment? By Ulrike Muehlberger; Silvia Pasqua
  4. Bank relationships and small firms’ financial performance By Annalisa Castelli; Gerald P. Dwyer, Jr.; Iftekhar Hasan
  5. Beyond Penrose : a cognitive theory of the firm By Nooteboom,Bart
  6. Optimal Government Regulations and Red Tape in an Economy with Corruption By Fabio Mendez; Facundo Sepulveda
  7. Small Islands, New Technologies and Globalization: A Case of ICT adoption by SMEs in Mauritius By Lal, Kaushalesh; Peedoly, Aveeraj Sharma
  8. Knowledge, Profitability and Exit of German Car Manufacturing Firms By Jens J. Krüger; Kristina Dreßler
  9. Degree of innovativeness and market structure: A model By Daniela Grieco

  1. By: Frank M. Fossen; Viktor Steiner
    Abstract: Entrepreneurial activity is often regarded as an engine for economic growth and job creation. Through tax policy, governments possess a potential lever to influence the decisions of economic agents to start and close small businesses. In Germany, the top marginal income tax rates were reduced exclusively for entrepreneurs in 1994 and 1999/2000. These tax reforms provided two naturally defined control groups that enable us to exploit the legislation changes as "natural experiments". First, the tax rate reductions did not apply to freelance professionals (Freiberufler), and second, entrepreneurs with earnings below a certain threshold were not affected. Using data from two different sources, the SOEP and the Mikrozensus (LFS), we analyse the effect of the tax cuts on transitions into and out of self-employment and on the rate of self-employment. We apply a "difference-in-difference-in-difference" estimation technique within a discrete time hazard rate model. The results indicate that the decrease in tax rates did not have a significant effect on the self-employment decision.
    Keywords: Taxation, entrepreneurship, natural experiment, difference-in-difference-in-difference estimation
    JEL: H24 H25 J23
    Date: 2006
  2. By: Engström, Per (Department of Economics); Holmlund, Bertil (Department of Economics)
    Abstract: Self-employed individuals have arguably greater opportunities than wage earners to underreport their incomes. The incentives for underreporting should be especially strong in an economy with generally high taxes. This paper uses recent income and expenditure data to examine the extent of underreporting of income among self-employed individuals in Sweden. A key hypothesis is that underreporting of incomes among the self-employed would be visible in the data as “excess food consumption”, for a given level of observed income. Our results confirm the underreporting hypothesis. In particular, we estimate that households with at least one self-employed member underreport their total incomes by around 30 percent. Under-reporting appears to be twice as prevalent among self-employed people with unincorporated businesses as among those with incorporated businesses.
    Keywords: Tax evasion; self-employment; Engel curves
    JEL: D12 H24 H25 H26
    Date: 2006–05–17
  3. By: Ulrike Muehlberger; Silvia Pasqua
    Abstract: Over the last decade Italy has seen a strong increase in the number of workers on the border between self-employment and employment. Depending on the data source the “parasubordinati”, i.e. workers with a “contract of continuous collaboration” (collaborators) represented between 1.8% (ISTAT, 2004) and 5.3% (Alteri and Oteri , 2004) of the Italian labour force. Since most of them work only for one company and are, moreover, strongly integrated into the firm of the contract partner, we argue that the Italian labour and social security law strongly discriminates against these workers who are, in fact, very close to employees. We investigate whether and in what respect the group of the collaborators differs from the group of employees and the group of the self-employed using the Italian Labour Force Survey (ILFS) of 2004 (4th quarter). Additionally, we analyse the short-term labour market transitions of collaborators to other labour market statuses. In contrast to other European countries, these collaborators are not low qualified workers, but young, highly educated professionals. At the same time the contracts of continuous collaboration are not a port of entry into the labour market nor do we find that these contracts are a vehicle to more stable jobs. However, they seem to be a possibility for women to work part-time.
    Keywords: Self-employment, Dependency, Outsourcing
    JEL: K31 J21 L22
    Date: 2006–05
  4. By: Annalisa Castelli; Gerald P. Dwyer, Jr.; Iftekhar Hasan
    Abstract: We examine the relationship between the number of bank relationships and firms’ performance, evaluating possible differential effects related to firms’ size. Our sample of firms from Italy includes many small firms, 99 percent of which are not listed and for which bank debt is a major source of financing. In the sample, 4 percent of the firms have a single bank relationship, and 66 percent of them have five or fewer relationships. We find that return on equity and return on assets decrease as the number of bank relationships increases, with a stronger relationship for small firms than for large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, our results are consistent with analyses indicating that fewer bank relationships reduce information asymmetries and agency problems, which outweigh negative effects connected to holdup problems.
    Date: 2006
  5. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This paper uses a cognitive theory of firms and organizations, with a focus on learning and innovation. Here, cognition is a wide notion, including value judgments and corresponding feelings and emotions. This paper focuses on the relation between that cognitive theory and Penrose's theory of the growth of the firm. As in Penrose's work, the focus is on learning, rather than on efficient utilization of resources or appropriation of returns from them. Also as in Penrose, the underlying view of cognition is a constructivist one, according to which people with different experience view the world differently. So far, the paper is consistent with Penrose. However, it also adopts and further develops some of the criticism of her views, concerning the role of other human resources than managers in organizational learning, problems of conflicts of interest and governance within the firm, dynamic capabilities for developing new capabilities, and, above all, the alternative of collaboration between firms, for learning and innovation, in the combination of capabilities between rather than within the firm. In particular, it argues that, in contrast with Penrose, there are limits to firm size.
    Keywords: theory of the firm;Penrose;knowledge;learning;innovation;dynamic capabilities;firm size;growth of the firm
    JEL: D21 L22 M13 M14 O31
    Date: 2006
  6. By: Fabio Mendez; Facundo Sepulveda
    Abstract: We study an economy where agents are heterogeneous in entrepreneurial ability, and may decide to become workers or entrepreneurs. The government is motivated by a production externality to impose regulations on entrepreneurship, and sets a level of red tape -administered by public officials-to test regulation compliance. In an environment where some officials are corrupt, we study what are the optimal levels of regulations and red tape, and to what extent such policies reduce the welfare losses created by corruption. For each level of externalities, we find that high and low levels of corruption create qualitatively different distortions, which in turn changes the nature and reach of optimal policies. Under low levels of corruption and externalities, the government sets low levels of regulations and minimal red tape, and with these policies achieves the first best allocation. When externalities and corruption are above a threshold, only a second best allocation can be achieved. Moreover, when externalities are large, mandating higher levels of red tape is a Pareto improving policy.
    Keywords: Corruption, optimal policy, red tape, regulations.
    JEL: D73 D60 D63 H21
    Date: 2006–03
  7. By: Lal, Kaushalesh (United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology); Peedoly, Aveeraj Sharma (University of Mauritius)
    Abstract: This paper sets out to locate Mauritian SMEs in the present context of global competition and more particularly to identify the extent to which they have adopted ICTs as a tool to meet the challenges which they now face. The essence of the argument that comes to the fore is that despite having an impressive number of SMEs which contribute enormously to employment creation in the country, the latter are in many ways ill-equipped to confront the challenges of global competition. The findings clearly show that the adoption of ICTs in SMEs is far from being an integral feature of Mauritian SMEs despite recent claims to be a cyber-island. Cost of communication and the lack of learning opportunities have been found as the major impediments in the adoption of ICTs. In turn this raises serious implications and challenges for the SMEs themselves and the Government in order to adapt to the requirements of globalisation.
    Keywords: Small Island Economies, ICT, SME, Probit Analysis
    JEL: O55 L86 L96 M13 C5
    Date: 2006
  8. By: Jens J. Krüger (University of Jena, Faculty of Economics); Kristina Dreßler (University of Jena, Faculty of Economics)
    Abstract: In this paper the profitability of German car manufacturing firms is related to different indicators for the knowledge incorporated in the firms since the birth of the industry in 1886. The analysis is performed with an ordered probit model, where information about the kind of exit of the firms is exploited to construct a latent profitability variable. Knowledge is represented by the number of patents, learning-by-doing and entrepreneurial experience before entry. The results show that knowledge is significantly positively related to firm profitability and that each of the three knowledge forms exerts an independent effect.
    Keywords: firms profitability, exit modes, knowledge, ordered choice, automobile industry
    JEL: L10 L21 L62 O33 C25
    Date: 2006–05–20
  9. By: Daniela Grieco (CESPRI, Bocconi University, Milano,Italy.)
    Abstract: A limited number of business firms engage in disruptive innovative activity. When firms decide among alternative innovative patterns, inertial forces may bias their choices in favour of incremental innovations. This paper proposes a model that compares firms’ value when firms can invest in strategies implying different degrees of innovativeness. The model shows that incremental strategies emerge as a dominant strategy for oligopolists when imitation of incremental innovation is sufficiently slow and firms are not too asymmetric in their access to knowledge. If these conditions are not respected, the model exhibits an additional symmetric Nash equilibrium where firms select radical innovations.
    Keywords: Radical innovation, Incremental Innovation, Imperfect competition, Patent race.
    JEL: D21 D81 L20 O33
    Date: 2006–04

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