The Impact of Banks, Regulation, and Taxes on the Survival and Operation of Entrepreneurial Ventures
Author: Austan Goolsbee
This project is using confidential data from the U.S. Census about the characteristics of entrepreneurs and small business owners to examine the impact of tax and other policies on the operation of entrepreneurial ventures. Drawing on this information, the study is exploring whether changes to marginal tax rates at the top of the income distribution had any noticeable impact on the hours that entrepreneurs work on their businesses or on the share of their time they devote to entrepreneurial ventures. Also being tested are such issues as the effect of tax rates on entrepreneurs’ decisions to operate a home office or offer health insurance to their workers, as well as their ability to stay in business.
To date some interesting findings have emerged. People for whom entrepreneurial activity is their primary line of work are not very sensitive to tax rates in their decisions. For people who are doing their ventures on the side, however, in that they are not spending much of their total time on the company and are largely just earning a small amount of side income, the decision to be entrepreneurial is highly influenced by tax rates. This may suggest that a tax system be designed to allow a small amount of independent income at a very low rate or even exempt it and then treat larger ventures the way ordinary jobs are treated. The findings also indicate that the concentration of banks in a city (usually thought to correspond to higher local interest rates for business loans and lines of credit) has a significant negative impact on the survival rates of local entrepreneurs