nep-sbm New Economics Papers
on Small Business Management
Issue of 2017‒07‒16
twenty papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The Knowledge Spillover Theory of Intrapreneurship, Labour Mobility and Innovation by Firm Size By Braunerhjelm, Pontus; Ding, Ding; Thulin, Per
  2. Spécificités des déterminants des innovations environnementales : une approche appliquée aux PME By Pinget, Amandine
  3. M&As, investment and financing constraints By Stiebale, Joel; Wößner, Nicole
  4. Network preferences and the growth of the British cotton textile industry, c.1780-1914 By Toms, Steven
  5. A Note on Schumpeterian Competition in the Creative Class and Innovation Policy By Batabyal, Amitrajeet; Yoo, Seung Jick
  6. The influence of the concentration on the performance of firms in retail industry in the Republic of Croatia By Ivan Kristek; Mladen Pancić; Hrvoje Serdarušić
  7. Technology Network Innovation and Distribution By Jingong Huang
  8. The Role of Demand in Fostering Product vs Process Innovation: A Model and an Empirical Test By Dawid, Herbert; Pellegrino, Gabriele; Vivarelli, Marco
  9. Firm dynamics in developing countries: a single policy for all regions? By Calá, Carla Daniela
  10. Measures, Drivers and Effects of Green Employment: Evidence from US Local Labor Markets, 2006-2014 By Francesco Vona; Giovanni Marin; Davide Consoli
  11. Entrepreneurship, Education and the Fourth Industrial Revolution in Africa By Naudé, Wim
  12. Dissolving the entrepreneurship puzzle: Applying Fréchet distributions to Lazear’s occupational choice model By Hårsman, Björn; Mattsson, Lars-Göran
  13. TO THE THRESHOLD AND BEYOND: SIZE, PRODUCTIVITY AND (SCALE) BARRIERS TO EXPORT By Stefano Costa; Federico Sallusti; Claudio Vicarelli; Davide Zurlo
  14. The Causal Impact of Social Connections on Firms' Outcomes By Eliason, Marcus; Hensvik, Lena; Kramarz, Francis; Nordstrom Skans, Oskar
  15. Evolution of the Global Knowledge Network: Network Analysis of Information and Communication Technologies’ Patents By Kibae Kim
  16. "It takes three to tango": Brain, cognition and entrepreneurial enhancement By Pérez-Centeno, Víctor
  17. Secular trends in innovation and technological change By Frietsch, Rainer; Schubert, Torben; Neuhäusler, Peter
  18. A Spatial Analysis of Innovation in Europe By Tonnerre, Antoine
  19. Young Innovative Firms, Investment-Cash Flow Sensitivities and Technological Misallocation By Oscar Mauricio Valencia-Arana; Jose Eduardo Gomez-Gonzalez; Andrés Garcia-Suaza
  20. How Do Entrepreneurial Portfolios Respond to Income Taxation? By Frank M. Fossen; Ray Rees; Davud Rostam-Afschar; Viktor Steiner

  1. By: Braunerhjelm, Pontus (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Ding, Ding (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Thulin, Per (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Presenting The Knowledge Spillover Theory of Intrapreneurship, we examine how labour mobility impacts innovation distributed on firm size. A matched employer-employee dataset, pooled with firm-level patent application data, is implemented in the analysis. We provide new evidence that knowledge workers’ mobility has a positive and strongly significant impact on all firms’ innovation output, measured as patent applications. The patterns and effects differ between large and small firms. More precisely, for small firms, intraregional mobility of knowledge workers that have previously worked in a patenting firm (the learning-by-hiring effect) are shown to be statistically and economically highly significant, whereas only limited impact could be detected for firms losing knowledge workers (the-learning-by-diaspora effect).
    Keywords: Labour mobility; knowledge diffusion; innovation; social networks
    JEL: J24 O31 R23
    Date: 2017–07–13
  2. By: Pinget, Amandine
    Abstract: Understanding how companies innovate for positive environment impact and sustainable development is a crucial issue for business and society today. Yet, little is currently known about this particular kind of innovation. The objective of this thesis is to shed light on the specificities of environmental innovation for small and medium-sized enterprises (SMEs) in terms of determinants and perceived barriers. The theoretical framework is based on the Porter’s Hypothesis in order to examine the effect of regulation. It is enriched by the RBV and KBV approaches to better take into account SMEs’ capabilities and resources in the adoption of environmental innovation. This research is based on three empirical articles and on a quantitative approach which mobilizes several econometric methods. This thesis contributes to three key findings: (1) Environmentally innovative SMEs perceive more barriers, in more intense and numerous ways, compared to others innovative or non-innovative SMEs; (2) Environmentally innovative SMEs utilize more external knowledge sources than other SMEs; (3) SMEs, like large firms, can adopt environmental innovations proactively because they possess certain capacities. These results lead to public policy and managerial recommendations for more widespread and more effective environmental innovation in SMEs.
    Keywords: Environmental innovation, Technological innovation, Determinants, Barriers, Strategic profile, SMEs
    JEL: Q5 Q55
    Date: 2016–12–01
  3. By: Stiebale, Joel; Wößner, Nicole
    Abstract: We use a panel data set of European firms to analyse the effects of domestic and international M&As on target firms' investment, growth and financial constraints. Combining propensity score matching with a difference-in-differences estimator, our results indicate that upon acquisition, target firms obtain better access to external finance, are characterized by higher levels of tangible and intangible assets, and display lower dependence of investments and cash savings to the availability of internal funds. We also provide evidence that these effects are concentrated among acquisitions during the 2007-2009 financial crisis, relatively small target firms, and domestic rather than foreign acquisitions.
    Keywords: Mergers and Acquisitions,Financial Constraints,Investment,Firm Growth,Financial Crisis,Foreign Ownership
    JEL: F61 F23 G01 G34 L25 D22 D24
    Date: 2017
  4. By: Toms, Steven
    Abstract: The paper considers the dual aspect of social networks in terms of 1) product innovators and developers and 2) the providers of finance. The growth of networks can be explained as a function of incumbents and entrants’ preferences to link with specific nodes defined according to the underlying duality. Such preferences can be used to explain network evolution and growth dynamics in the cotton textile industry, from being the first sector to develop in the industrial revolution through to its maturity. The network preference approach potentially explains several features of the long run industry life cycle: 1. The early combination of innovators with access to extensive credit networks, protected by entry barriers determined by pre-existing network structures, leading to lower capital costs for incumbents and rapid productivity growth, c.1780-1830. 2. The spread of innovation and productivity through value chain linkages during the nineteenth century. 3. The trust movement, joint stock and personal capitalism: the emergence of large firms and a preference for regional financial markets in Lancashire and Scotland. 4. The consolidation of regional instead of national business groups which help explain the decline of the industry. The paper uses case studies of firms, networks, and market institutions based on a mixture of archival evidence, drawn mainly from the financial records of a large sample of cotton firms, and contemporary publications. It stresses human interactions (as opposed to population ecology mechanisms) as determinants of the character, scale and scope of network evolution. Intergenerational features of the networks are identified and classified by these characteristics. Networks were typically bounded in terms of product innovators and less bounded in terms of finance providers. Consequently, finance providers tend to provide the impetus for the rate of network growth in expansion, maturity and contraction phases.
    Keywords: Business networks, British cotton textile industry, innovation, finance, regions, entrepreneurship, mergers.
    JEL: L14 L26 N23 N83 O33
    Date: 2017–07–06
  5. By: Batabyal, Amitrajeet; Yoo, Seung Jick
    Abstract: We study innovation policy in a region in which the members of the creative class engage in Schumpeterian competition and thereby extend aspects of the recent analysis in Batabyal and Yoo (2017). Using the language of these researchers, the creative class is broadly composed of existing and candidate entrepreneurs. In contrast to these researchers, we suppose that R&D by candidate entrepreneurs does not generate any negative externalities. In this setting, we analyze the impact that taxes and subsidies on R&D by existing and candidate entrepreneurs have on R&D expenditures and regional economic growth.
    Keywords: Creative Class, Creative Destruction, Economic Growth, Innovation Policy, R&D
    JEL: O31 O38 R11
    Date: 2017–06–30
  6. By: Ivan Kristek (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku); Mladen Pancić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku); Hrvoje Serdarušić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku)
    Abstract: According to SCP paradigm (Structure-Conduct-Performance paradigm) the industry structure affects the behavior of firms in the industry, which affects their performance. The paradigm is consistent with the Neoclassical Theory of the Firm which assumes that there is a direct link between the industry structure, entrepreneurial conduct and performance. The basic principle of this paradigm might be the ability of entrepreneurs to exercise market power in a concentrated industry. High industry concentration is correlated with high profits, especially if the concentration level exceeds a certain critical level under the condition that there are some barriers to entry of new entrepreneurs in the industry. Economic theory supports the view that the industry concentration is in a positive relationship with efficiency, and it can be argued that the growth of industry concentration will increase the efficiency of industry. Current approaches in economic theory and recent empirical studies do not follow the SCP theory, they suggest that the above-average profits, which occur in most concentrated industry’s, are results of economic efficiency and effectiveness, and not a consequence of non-competitive behavior. In this paper we will try to give an answer to the above-mentioned issue present in economic theory. The study will try to demonstrate a statistically significant link between the measure of concentration and measure of efficiency in retail industry in the Republic of Croatia.
    Keywords: SCP, concentration, efficiency, retail industry
    JEL: D22 L11 L25 L81
    Date: 2017–04–05
  7. By: Jingong Huang (University of Melbourne)
    Abstract: Motivated by empirical evidence from the U.S. patent citation data on the dynamics of firms' patent portfolio development, I build a model of innovation incorporating a technology network structure. The model features firms operating in multiple technology sectors and internalising the spillovers of their own knowledge accumulation to produce patents. Two new insights emerge: The technology network is an important determinant of the patent distribution in different sectors. The growth of patents in each sector is proportional to the Eigenvector Centrality of the technology network. The model is estimated using Simulated Method of Moments and it is capable of reproducing the patent distribution observed in the data.
    Date: 2017
  8. By: Dawid, Herbert (University of Bielefeld); Pellegrino, Gabriele (EPFL, Lausanne); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: While the extant innovation literature has provided extensive evidence of the so-called "demand-pull" effect, the possible diverse impact of demand evolution on product vs process innovation activities has not been yet investigated. This paper develops a formal model predicting a larger inducing impact of past sales in fostering product rather than process innovation. This prediction is then tested through a dynamic microeconometric model, controlling for R&D persistence, sample selection, observed and unobservable individual firm effects and time and sectoral peculiarities. Results are consistent with the model and suggest that an expansionary economic policy may benefit the diffusion of new products or even the emergence of entire new sectors.
    Keywords: technological change, R&D, demand-pull innovation, dynamic two tobit
    JEL: O31
    Date: 2017–06
  9. By: Calá, Carla Daniela
    Abstract: We analyse the determinants of firm dynamics in developing countries using Argentina as an illustrative case. We explain firm entry and exit at the regional level, distinguishing three groups of manufacturing activities: low, medium and high tech. We find that both region- and sector- specific determinants explain firm dynamics, but the impact is not homogeneous across the sectors considered. In particular, for low tech industries, there is a need for explanatory variables that proxy for the specificities of developing economies (e.g., poverty, informal economy and idle capacity). We also find evidence of a core-periphery pattern according to which agglomeration economies and previous entries and exits have different effects in core and peripheral regions. These results are relevant for policy makers in developing countries, who should take into account not only the specificities of such economies, but also the regional heterogeneity both in terms of the level of development and industrial composition within the country .
    Keywords: Dinámica Empresarial; Creación de Empresas; Cese de Actividad; Relación Centro-Periferia; Economía Regional; Argentina;
    Date: 2015–12
  10. By: Francesco Vona (Observatoire Francais des Conjonctures Economiques (OFCE), France; Universite Cote d'Azur, SKEMA, CNRS, GREDEG, France.); Giovanni Marin (Department of Economics, Society and Politics, University of Urbino `Carlo Bo', Italy.); Davide Consoli (ZINGENIO[CSIC-UPV], Valencia, Spain.)
    Abstract: This paper explores the nature and the key empirical regularities of green employment in US local labor markets between 2006 and 2014. The main methodological novelty consists of a new measure of green employment based on the task content of occupations. Descriptive analysis reveals that: 1. the share of green employment is between 2 and 3 percent, with a strongly pro-cyclical trend; 2. the green wage premium is 4 percent; 3. green jobs are more geographically concentrated than similar non-green jobs; and 4. the top green areas are mostly high-tech. As regards to the drivers, direct changes in environmental regulation are a secondary force in explaining the 8-years growth of green jobs compared to the local amount of green subsidies within the American Recovery and Reinvestment Act (ARRA), the endowment of green knowledge and the resilience to the great recession. Assessing the impact of moving to greener activities, we find that one additional green job is associated with 4.2 (2.2 in the crisis period) new local jobs in non-tradable activities, and that this effect can be mostly ascribed to the green ARRA package.
    Keywords: Green employment; local labor markets; task-based approach; local multipliers; green American Recovery and Reinvestment Act; environmental policies
    JEL: J23 O33 Q52 R23
    Date: 2017–07
  11. By: Naudé, Wim (Maastricht University)
    Abstract: The Fourth Industrial Revolution (4IR) is impacting on the industrialization options for Africa inter alia through three interrelated sets of technologies, namely automation, additive manufacturing and the Industrial Internet. In this paper I set out the case for why Africa should industrialize. I then explore the opportunities and threats the 4IR pose for Africa. Threats include job-losses and the re-shoring of manufacturing to advanced economies. Among the opportunities are products-as-services, the sharing (collaborative) economy, and digital services and digital exports. These are markets that are currently underdeveloped in Africa but have substantial potential given Africa's geography, demography and on-going urbanisation. In order for the continent to benefit from the 4IR more needs to be done to improve entrepreneurship and education. A number of policy recommendations for 4IRcompatible entrepreneurship and education policies are made.
    Keywords: industrial policy, entrepreneurship, education, Africa
    JEL: O55 O25 O14 O33 L26 J24
    Date: 2017–06
  12. By: Hårsman, Björn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Mattsson, Lars-Göran (Royal Institute of Technology, Department of Transport Science)
    Abstract: The paper deals with the selection into entrepreneurship and more precisely with Lazear’s model of occupational choice between entrepreneurship and paid employment. The basic aim is to show that lower expected income for entrepreneurs vs. wage-employed is fully compatible with Lazear’s assumption that the selection into entrepreneurship is based upon income maximization – there is no “return to entrepreneurship puzzle”. We will prove this by deriving the theoretical implications that follow from the assumption that skills are Fréchet distributed. Another aim is to shed some empirical light on the resulting theoretical results. This is done by using individual level data from the Swedish employment register for 2004-2008 to compute the parameters of the Fréchet distribution and the corresponding income distributions for self-owners and wage employed. The paper contributes to earlier literature by resolving the so called income paradox and by demonstrating the rich possibilities for empirical studies inherent in the Lazear model.
    Keywords: entrepreneurship; occupational choice; self-owning; skill distribution; Fréchet distribution; entrepreneurship puzzle
    JEL: J24 J30 L26 M13
    Date: 2017–07–07
  13. By: Stefano Costa (Italian National Institute of Statistics); Federico Sallusti (Italian National Institute of Statistics); Claudio Vicarelli (Italian National Institute of Statistics); Davide Zurlo (Italian National Institute of Statistics)
    Abstract: DMaking use of a firm-level dataset for the universe of Italian exporting firms collected by ISTAT, we identify the minimum combinations of size and productivity that Italian manufacturing firms need to achieve (in their own industry) in order to access international markets. These “export thresholds” are estimated by applying for the first time in economics the ROC (Receiver Operating Characteristics) methodology, so far widely used in other disciplines (e.g. medicine, machine learning, natural sciences). The results of the analysis allow us to provide, for each industry: (1) a mapping of the upper and lower-side of the distribution of firms with respect to the export threshold, stressing the size-productivity combination choices of exporting and non-exporting units; (2) the relative weight of productivity and size in determining the export threshold in a given industry; 3) the best lever of policy to be used in order to increase firms’ intensive margin (the share of exported turnover) as well as the extensive margin for the Italian economy (the share of exporting firms). The methodology proposed in this paper can also open the field to further important developments. In particular, our empirical model could be augmented to point out other determinants of the thresholds than size and productivity, especially those related to the industry structure or regulation. Such “exogenous” dimensions of the export thresholds would help better detect effective policy interventions to reduce barriers to trade
    Keywords: ROC analysis, export threshold, intensive and extensive margin of exports
    JEL: F14 L60 L11
    Date: 2017
  14. By: Eliason, Marcus; Hensvik, Lena; Kramarz, Francis; Nordstrom Skans, Oskar
    Abstract: The paper studies how social connections affect firm-level hiring decisions and performance. We use register data to characterize the social connections of firms' employees. For causal identification, we use displacements which create directed supply shocks towards the firms of the displaced workers' social connections. We make sure that our results are fully driven by these directed supply shocks. Results show that firms appear to prefer employed workers they are connected to over unconnected or unemployed workers when hiring. The employed and connected mostly go to high-productivity firms whereas the unemployed and unconnected tend to go to low-productivity firms. Strong connections - family, recent, durable, formed in small groups, between socially similar agents - matter the most. Displacements shocks cause connected firms, in particular low-productivity ones, to hire those workers they are connected to. Unconnected hires and separations are essentially unaffected. These supply shocks therefore cause the creation of additional jobs which increase firms' employment. In addition, we use these shocks to show that hiring connected workers has a positive causal impact on firm performance. These results are consistent with a stylized framework where connections reduce hiring frictions and where the firm-level possibility to hire connected workers is a function of changing outside options of these workers.
    Keywords: job creation; Job Displacement; job search; networks
    JEL: J23 J30 J60
    Date: 2017–07
  15. By: Kibae Kim (Technology Management, Economics, and Policy Program; College of Engineering; Seoul National University)
    Abstract: In recent studies, Information and Communication Technologies have been key drivers of innovation and economic growth throughout the world. Because the Information and Communication Technology products and services require intensive knowledge, leading countries invested in their innovation systems to operate more effectively and efficiently. Studies on innovation have investigated the knowledge base of countries and their respective relationships with their national institutions, and subsequent economic growth to identify factors which have led to success. However, the approaches of previous studies omit the constituents of the knowledge base while focusing on quantitative aspects such as size. In this article, I propose a novel approach to exploring the knowledge base at a global level by undertaking a network analysis of patents. In this framework, the global knowledge network is defined as a set of countries and respective technological similarities between countries as vertices and edges. Applying this framework, the research questions are addressed qualitatively by identifying the structure of the network and how it has evolved. The analysis results indicate that the global knowledge network consists of a cluster of developed countries, and the cluster is linked with developing countries through Japan, U.S.A. and China. They also show that the Information and Communication Technology leaders changed from Great Britain and France to U.S.A. in 1920s, from U.S.A. to Japan in 1970s. The framework is expected to be applied to economic studies of innovation and knowledge bases at a global level.
    Keywords: Global Knowledge Network, Information and Communication Technology, Technology Leadership, Network Analysis, Patents.
    JEL: A12 O33 O34 O53
    Date: 2015–09
  16. By: Pérez-Centeno, Víctor
    Abstract: In the global clash for unveiling the 'innermost secrets' of the brain, the field of neuroscience is the most fitting contender. Neuroscience is not quite ready to win the war for now, but it is assuredly equipped to win some battles. Notwithstanding that entrepreneurship is fundamentally a braindriven phenomenon, entrepreneurship research based on neuroscience's tools cannot be counted on the fingers of more than one hand. Grounded on a prior literature review that investigates the state of neuroscience's use in entrepreneurship research, this position paper reflects on the future implications that the utilization of neuroscience brings to entrepreneurship research and cognition. To articulate this exercise, I present the so-called five 'winds of disruption' to signal where to go next in the study of entrepreneurship from a brain-driven perspective. Next I spell out four ways to maximize neuroscience's inputs into entrepreneurship research. Furthermore, I synthesize the value of three neuroscience-based tools to rear and boost 'entrepreneurial enhancement', the ultimate challenge in the orbit of entrepreneurship research.
    Keywords: entrepreneurial neuroscience,neuro-entrepreneurship,entrepreneurial enhancement,cognition,brain-driven entrepreneurship,entrepreneurial enhancement
    JEL: L26 M13 O33
    Date: 2017
  17. By: Frietsch, Rainer; Schubert, Torben; Neuhäusler, Peter
    Abstract: This paper deals with the question of changing relations between business R&D (BERD), patents and output measures like value added and productivity (macro level) as well as EBIT and market capitalization (micro level) to analyze long-term/secular effects of technological change at different levels. The results of the panel data reveal an increase of the patent numbers resulting from R&D expenditures. However, we also find a difference in the elasticities of BERD and patents between patent-intensive and non-patent-intensive sectors. In addition, the association between patents and labor productivity falls when all sectors are taken into account, implying decreasing contributions of technological progress to the productivity. Yet, the drivers are non-patent-intensive sectors, as we observe an increasing association of patents and labor productivity for patent-intensive sectors. The results of the enterprise panel data reveal similar results. The correlations between R&D and patents increased over the last 20 years, although it seems there is a concentration of R&D and patenting activities to a smaller amount of firms, which can partially be explained by the fact that research and development that is necessary for a single patent has become more and more expensive in the past years.
    Date: 2017
  18. By: Tonnerre, Antoine
    Abstract: The purpose of this paper is two-fold. Firstly, it surveys different works related to the analysis of Innovation and the way it spreads locally. We will see that theoretical predictions and empirical facts are rather contradictory. This will lead us, secondly, to shedding light towards the concentration of innovative activities in the European Union, at a more precise level of analysis: the NUTS2 nomenclature. We contradict the usually accepted empirical fact that innovative activities tend to be less and less concentrated, thus supporting the theory of knowledge spillovers, which is probably due to the important changes the European Union went through in terms of trade structure. This claim relies on a rather simple but well-founded analysis. Patent applications to the European Patent Office will be used as a proxy for the level of Innovation. These patent applications have a geographical component that will be exploited to determine whether spatial autocorrelation of innovative activities is present. After showing the importance of considering spatial autocorrelation in an analysis of Innovation, we will propose an empirical methodology to assess how it spreads. Regarding this, no results are presented, as it goes beyond the scope of the paper.
    Keywords: Innovation, knowledge spillovers, spatial concentration, spatial autocorrelation, empirics, patents, European Union, NUTS2.
    JEL: O31 R12
    Date: 2017–07–10
  19. By: Oscar Mauricio Valencia-Arana; Jose Eduardo Gomez-Gonzalez; Andrés Garcia-Suaza
    Abstract: Can technological misallocation generate financial frictions? We build a theoretical model with testable implications, in which the misallocation between R&D and production activities generates borrowing constraints. The investor offers the innovator a rent that is contingent to the success of its project in order to make them exert an incentive-compatible effort level. However, this rent distorts the allocation of effort between activities. Specifically, it leads to a suboptimal level of effort impulsing a reallocation of resources from production to R&D. Consequently, the investor cannot appropriate the surplus resulting from innovation. This distortion increases the cost of external financing for firms that have large amount of intangible assets. Using Compustat data for manufacturing firms in the United States between 1982 and 2007, we show that cash-flow sensitivities are positive and increasing in firms with high R&D intensities
    Keywords: Moral Hazard, Endogenous Borrowing Constraints, and TechnologicalMisallocation
    JEL: G11 D86
    Date: 2017–06–06
  20. By: Frank M. Fossen; Ray Rees; Davud Rostam-Afschar; Viktor Steiner
    Abstract: We investigate how personal income taxes affect the portfolio share of personal wealth that entrepreneurs invest in their own business. In a reformulation of the standard portfolio choice model that allows for underreporting of private business income to tax authorities, we show that a fall in the tax rate may increase investment in risky entrepreneurial business equity at the intensive margin, but decrease entrepreneurial investment at the extensive margin. To test these hypotheses, we use household survey panel data for Germany eliciting the personal wealth composition in detail in 2002, 2007, and 2012. We analyze the effects of personal income taxes on the portfolio shares of six asset classes of private households, including private business equity. In a system of simultaneous demand equations in first differences, we identify the tax effects by an instrumental variables approach exploiting tax reforms during our observation period. To account for selectioninto entrepreneurship, we use changes in entry regulation into skilled trades. Estimation results are consistent with the predictions of our theoretical model. An important policy insight is that lower taxes drive out businesses that are viable only due to tax avoidance or evasion, but increase investment in private businesses that are also worthwhile in the absence of taxes.
    Keywords: Taxation, entrepreneurship, portfolio choice, investment
    JEL: H24 H25 H26 L26 G11
    Date: 2017

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