U.S. State Government policies and entrepreneurship
| DOI | https://doi.org/10.1108/JEPP-09-2013-0041 |
| Pages | 102-110 |
| Date | 13 April 2015 |
| Published date | 13 April 2015 |
| Author | Dmitriy Krichevskiy,Thomas Snyder |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
U.S. State Government policies
and entrepreneurship
Dmitriy Krichevskiy
Business Department, Elizabethtown College, Elizabethtown,
Pennsylvania, USA, and
Thomas Snyder
Department of Economics, Finance, and Insurance and Risk Management,
University of Central Arkansas, Conway, Arkansas, USA
Abstract
Purpose –The purpose of this paper is to test the effects of government policies on entrepreneurial
activity within the 50 US states.
Design/methodology/approach –Using panel data and a fixed-effects model, the authors examine
the determinants of the nominal establishment entry rate, the nominal establishment exit rate, and the
net establishment entry rate. To measure government policy, the authors use the Economic Freedom of
North America (EFNA) index published by the Fraser Institute. The authors use both the overall
index and its components. The authors also use the state and local tax burden published by the
Tax Foundation.
Findings –The authors find that a smaller government is associated with a net increase in business
establishments. A freer labor market is also associated with a net increase in business establishments.
However, the relationship between the tax burden and entrepreneurship is more complex. Using
a measurement of the tax burden from the Fraser Institute, the authors find that an increase in taxes is
associated with a net decrease in businesses, but the measurement from the Tax Foundation suggests
that an increase in taxes is associated with a net increase in businesses.
Research limitations/implications –The results can help policy makers recognize the effects of
expenditure and regulation on business formation.
Practical implications –However, the results do not send a clear message on the effects of taxes
on entrepreneurship.
Originality/value –The contribution to the literature is the examination of the effect of the
components economic freedom on net business entry in the USA, along with comparing the effects
of two measurements of tax burden on net business entry.
Keywords Tax policy, Entrepreneurial opportunity, Freedom, Sub-national government
Paper type Research paper
1. Introduction and literature
Economic freedom has been found to be associated with economic growth (e.g.
Doucouliagos and Ulubasoglu, 2006; De Haan et al., 2006). One channel which the free
market encourages economic growth is through entrepreneurship, as studied by Kreft
and Sobel (2005). However, economic freedom is also known for creative destruction,
where firms may go out of business as new firms enter. If the free market encourages
both firm entry and firm exit, it is a matter of empirics to determine whether net firm
entry (entry minus exit) will be positively or negatively affected by economic freedom.
The main purpose of this paper will be to determine whether economic freedom causes
a net increase or decrease in business establishments in the USA.
Before discussing whether economic freedom yields a net increase in businesses, it is
useful to consider the importance of a new business creation. After all, if new business
establishments have no relevance to variables that are of great concern, such as overall
Journal of Entrepreneurship and
Public Policy
Vol. 4 No. 1, 2015
pp. 102-110
©Emerald Group Publishing Limited
2045-2101
DOI 10.1108/JEPP-09-2013-0041
Received 18 September 2013
Revised 20 December 2013
Accepted 20 December 2013
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
102
JEPP
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