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.

Corporate taxes, D24, GEM, H24, Innovative entrepreneurship, L26, Personal income taxes, Start-up costs
Entrepreneurship (jel L26), Personal Income and Other Nonbusiness Taxes and Subsidies (jel H24), Production; Capital and Total Factor Productivity; Capacity (jel D24)
dx.doi.org/10.1007/s11187-018-0005-9, hdl.handle.net/1765/109654
Small Business Economics: an entrepreneurship journal
Erasmus School of Economics

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