State‐funded angel investor tax credits. Implementation and perceived effectiveness in a sample of states within the United States
| DOI | https://doi.org/10.1108/20452101211208353 |
| Pages | 50-62 |
| Date | 20 April 2012 |
| Published date | 20 April 2012 |
| Author | John R. Hendon,Joseph R. Bell,Brittany Blair,Don K. Martin |
| Subject Matter | Strategy |
State-funded angel investor
tax credits
Implementation and perceived effectiveness
in a sample of states within the United States
John R. Hendon, Joseph R. Bell, Brittany Blair and Don K. Martin
University of Arkansas Little Rock, Little Rock, Arkansas, USA
Abstract
Purpose – Over the past decade more than 20 states have begun to offer tax credits to angel investors
in an attempt to increase state economic growth. These credits are intended to increase new venture
investment, create high-paying and knowledge-based jobs, and increase tax revenue collections, but
there is some debate over costs and benefits associated with these credits. This paper aims to
investigate this issue.
Design/methodology/approach – This paper will examine the implementation and perceived
effectiveness of tax credit programs in Hawaii, Louisiana, Wisconsin, Minnesota, Oregon, and
Vermont. These states were chosen for this research sample based on their differing physical locations
within the USA and the uniqueness of the characteristics of each state’s chosen tax credit program.
Findings – The paper reveals that state investment tax credit programs vary widely in areas of
eligibility, level of funding available per investment and per year, and whether or not the credits are
refundable. All of these factors can cause significant variability in effectiveness of a state program.
Practical implications – Recommended criteria for achieving an outcome that may result in
lawmaker support for tax credit incentives will be outlined based on the success, trial, and er ror of
various state programs. These criteria will allow some commonality in analysis of potential or ongoing
incentive programs.
Originality/value – This paper provides an analysis of the various existing state investment tax
credit programs and identifies characteristics of such programs that may, if used during program
formation, result in greater confidence by lawmakers in the program’s overall effectiveness and
provide a greater commitment to program success.
Keywords Tax credits, State economic growth, State investment, Incentives, Public policy,
Perception, United States of America
Paper type Research paper
1. Introduction
Most economists agree that entrepreneurship is essential to the vitality of any
economy: creating new businesses, generating jobs, increasing technological
competition, and aiding productivity of the state. In the USA, approximately 75
percent of the new jobs added to the American economy each year are generated by
small businesses, and small businesses represent 99 percent of all US employers
(Holden, 2007).
Entrepreneurs provide innovation which leads to economic growth. Small firms
provide far more innovation than do large firms. According to the Small Business
Administration, small technology companies produce nearly 13 times more patents
per employee than large firms. They represent one-third of all companies possessing
15 patents or more (Holden, 2007). In response to the budget crunc h, however, some
states are putting a stop to tax credit and incentive programs intended to foster
entrepreneurship and create jobs. Those in favor of the cuts argue that the tax policies
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Journal of Entrepreneurship and
Public Policy
Vol. 1 No. 1, 2012
pp. 50-62
rEmeraldGroup PublishingLimited
2045-2101
DOI 10.1108/20452101211208353
50
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