Prior research investigates the role of start-up costs and taxes with regard to entrepreneurship. Yet, little distinction is made regarding the type of entrepreneurship, particularly innovative versus non-innovative entrepreneurship. We shall argue that start-up costs and taxes are associated in different ways with innovative versus non-innovative entrepreneurship. Taxes being recurring costs should mainly relate to innovative entrepreneurship, whereas start-up costs being one-off costs should mainly relate to non-innovative entrepreneurship.
Analyzing a dataset of 632,116 individuals, including 43,223 entrepreneurs from 53 countries, we can partially confirm our predictions. Corporate taxes show a negative relationship with innovative entrepreneurship, whereas income taxes seem to have no relationship. High start-up costs have a positive relationship with innovative entrepreneurship, although this finding only holds true in cross-sectional investigations. Our paper contributes to the discussion on how governmental regulation and taxes relate to entrepreneurship.

Additional Metadata
Keywords Corporate taxes, D24, GEM, H24, Innovative entrepreneurship, L26, Personal income taxes, Start-up costs
JEL Entrepreneurship (jel L26), Personal Income and Other Nonbusiness Taxes and Subsidies (jel H24), Production; Capital and Total Factor Productivity; Capacity (jel D24)
Persistent URL dx.doi.org/10.1007/s11187-018-0005-9, hdl.handle.net/1765/109654
Journal Small Business Economics: an entrepreneurship journal
Citation
Darnihamedani, P, Block, J.H, Hessels, S.J.A, & Simonyan, A. (2018). Taxes, start-up costs, and innovative entrepreneurship. Small Business Economics: an entrepreneurship journal, 51(2), 355–369. doi:10.1007/s11187-018-0005-9