Investor Tax Credits and Entrepreneurship: Evidence from U.S. States

Matthew R. Denes, Sabrina T. Howell, Filippo Mezzanotti, Xinxin Wang, Ting Xu

NBER Working Paper No. 27751
Issued in August 2020
NBER Program(s):Corporate Finance, Public Economics, Productivity, Innovation, and Entrepreneurship

Angel investor tax credits are used globally to spur high-growth entrepreneurship. Exploiting the staggered implementation of these tax credits in 31 U.S. states, we find that while they increase angel investment, they have no significant effect on entrepreneurial activity. Tax credits induce entry by inexperienced, local investors and are often used by insiders. A survey of 1,411 angel investors suggests that a “home run” investing approach alongside coordination and information frictions explain low take-up among experienced investors. The results contrast with evidence that direct subsidies to firms have large positive effects, raising concerns about using investor subsidies to promote entrepreneurship.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Acknowledgments and Disclosures

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w27751