Entrepreneurship and the policy environment

This paper uses a panel approach to examine the effect that the government-policy environment has on the level of entrepreneurship. Specifically, the authors investigate whether marginal income tax rates and bankruptcy exemptions influence rates of entrepreneurship. Whereas previous work in the literature finds that both policies are positively related to entrepreneurship, these results show non-monotonic relationships: a U-shaped relationship between marginal tax rates and entrepreneurship and an S-shaped relationship between bankruptcy exemptions and entrepreneurship.