Financing Entrepreneurship through the Tax Code: Angel Investor Tax Credits / Sabrina T. Howell, Filippo Mezzanotti.

Format:

Book

Author/Creator:

Howell, Sabrina T.

Contributor:

National Bureau of Economic Research.

Mezzanotti, Filippo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26486.

NBER working paper series no. w26486

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Financing Entrepreneurship through the Tax Code

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

A central issue in public finance is the tradeoff between maintaining tax revenues and using the tax code to incentivize particular economic activities. One important dimension of this tradeoff is whether incentive policies are used in practice as policymakers intend. This paper examines one particular tax program that many U.S. states use to stimulate entrepreneurship. Specifically, angel tax credits subsidize wealthy individuals' investments in startups. This paper finds that these programs have no measurable effect on local entrepreneurial activity or beneficiary company outcomes, despite increasing some measures of angel activity. This appears to reflect the programs failing to screen out financially unconstrained firms and often being used for tax arbitrage. Over 90 percent of beneficiary companies fall into at least one of three categories: a corporate insider received a tax credit; the company previously raised external equity; or the company is not in a high-growth sector. Notably, at least 33 percent of beneficiary companies include an investor receiving a tax credit who is an executive at the company.

Notes:

Print version record

November 2019.