The impact of taxes and regulations on firm births and deaths in state border counties
| Pages | 25-37 |
| DOI | https://doi.org/10.1108/JEPP-06-2014-0025 |
| Published date | 11 April 2016 |
| Date | 11 April 2016 |
| Author | Michael Crum,Stephan F Gohmann |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
The impact of taxes and
regulations on firm births and
deaths in state border counties
Michael Crum
College of Business, Northern Michigan University,
Marquette, Michigan, USA, and
Stephan F. Gohmann
Department of Economics, University of Louisville,
Louisville, Kentucky, USA
Abstract
Purpose –The purpose of this paper is to examine the influence of the institutional environment on
firm birth and death rates. It is hypothesized that high taxation levels, large government size, high
levels of unionization and high minimum wages will be associated with relatively low firm birth and
death rates.
Design/methodology/approach –This study makes use of a set of custom tabulations from the US
Census Bureau that contain data on county-level firm births and deaths. To account for differences in
state policies, matched contiguous counties located on state borders are used to calculate matched birth
and death ratios.
Findings –In the sample of eastern US state border counties, state taxation levels and minimum
wages had no significant relationship with firm birth rates, but there was a negative relationship
between state union densities and firm birth rates. Both state education and public welfare
expenditures were marginally negatively related to firm birth rates. State public welfare expenditures
were negatively related to firm death rates, while a marginally significant negative relationship
between hospital/health expenditures and firm death rates was observed.
Research limitations/implications –These results indicate that state government expenditures
may have varying influences on firm birth and death rates, and that high union densities may deter
new firm entry.
Originality/value –This paper makes use of a county matching technique to help control for
confounding variables, allowing for differences in state policies to be better accounted for.
Keywords Freedom, Firm performance, Sub-national government
Paper type Research paper
Introduction
Entrepreneurship is often defined as the creation of a new organization (Gartner, 19 88).
In the USA the formation and death of new organizations varies dramatically by
location. For example, in 2005, Los Angeles County had 31,567 single-unit firm births
and 22,393 firm deaths, whereas 12 US counties had no firm births and 43 had no firm
deaths (US Census Bureau, 2007). In addition to individual attributes of entrepreneurs,
many environmental factors influence if, where, and what type of entrepreneurial
activity occurs. For example, the size of the local market is a strong predictor of
regional new firm formation (Davidsson et al., 1994), as a larger population results in
greater demand for goods and services. Labor markets with high levels of college
graduates, income growth and population growth also have high rates of new firm
formation (Armington and Acs, 2002). One important environmental factor are
institutions, or the rules of the game in an economy. Individuals are more likely to start
Journal of Entrepreneurship and
Public Policy
Vol. 5 No. 1, 2016
pp. 25-37
©Emerald Group Publis hing Limited
2045-2101
DOI 10.1108/JEPP-06-2014-0025
Received 2 June 2014
Revised 19 January 2015
Accepted 5 March 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
25
Impact of
taxes and
regulations
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