Entrepreneurship: a weak link in the welfare state?

Abstract

Entrepreneurship is largely ignored or treated in a highly simplified way in endogenous growth theory. Still, it is now widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. This study consists of an indepth examination of how the supply of productive entrepreneurship is likely to be affected by the kind of tax and welfare arrangements that may prevail in a mature welfare state. Sweden, allegedly the most extensive of all welfare states, is the object of the empirical analysis. It is shown how key welfare state institutions tend to reduce economic incentives both for opportunity-based and necessity entrepreneurship. Both aggregate economic performance and data on firm growth and direct measures of entrepreneurial activity are broadly consistent with the identified structure of payoffs. A number of measures can be implemented to strengthen entrepreneurial incentives within extensive welfare states, but the fact still remains that an entrepreneurial culture and a welfare state are very remotely related. As a result, the respective cultures are unlikely to be promoted by a similar set of institutions.JEL Classification: M13; J20; H30; O12.

The knowledge spillover theory of entrepreneurship

“…As an alternative, we also include tax share in GDP for both individual (TAX-PERS) and corporate firms (TAXCORP). Start-ups are less likely to occur if incentive structures are distorted through high taxes (Henrekson 2005). We expect these variables to be negatively associated with entrepreneurship.…”

Muppets and Gazelles: Political and Methodological Biases in Entrepreneurship Research

“…Large firms had emerged in the late 19th century with higher levels of productivity and innovation (Chandler, 1990;Henrekson, 2005;Schumpeter, 1942). They generated extensive economies of scale, scope, and speed, allowing them to become global oligopolies, so that today 25% of the US population work in firms with 410,000 employees and only 16.6% in small firms with 520 employees (Bartelsman et al, 2005;Haltiwanger et al, 2010).…”

Entrepreneurship and the process of firms' entry, survival and growth

“…In spite of Schumpeter's contribution, and although entrepreneurship had already played a role in economic theory since the works of Richard Cantillon and Jean-Baptist Say in the 18 th and early 19 th century (see Van Praag, 1999), the entrepreneurial function has only in the last few years been systematically proposed as an additional factor in explaining economic growth within developed countries. While endogenous growth theories (see Lucas, 1988;Romer, 1986 andGrossman and Helpman, 1991) highlighted the important role of human capital and R&D as additional explanations of increasing returns in the aggregate production function, various scholars have recently put forward entrepreneurship as a third component of a new "new-growth theory", exploiting the opportunities provided by new knowledge and ideas that are not fully commercialized by incumbent firms (see Acs et al, 2005;Henrekson, 2005;Audretsch, Keilbach and Lehmann, 2006). According to these authors, by serving as a conduit for both entirely new knowledge and knowledge spillovers, entrepreneurship is the missing link between investment in new knowledge and economic growth 1 .…”