Small Business Economics

, Volume 47, Issue 4, pp 1033–1047 | Cite as

Entrepreneurship policy and economic growth: Solution or delusion? Evidence from a state initiative

Article

Abstract

The last two decades marked a turning point for entrepreneurship policy, highlighting the crucial role of public policy to generate the conditions that encourage business creation and expansion. As more states design and implement entrepreneurship policies of their own, understanding how these policies can support and harness the full potential of entrepreneurship becomes more critical. This paper uses a quasi-market framework for development competition (Feiock in Journal of Urban Affairs, 24, 123–142, 2002. doi:10.1111/1467-9906.00118) to report on the effects on economic growth of an entrepreneurship policy implemented in 2004 in the state of Kansas as part of the Kansas Economic Growth Act. Specifically, it studies the impact of tax credit funds provided by one of its programs, the Entrepreneurial Community (E-Community) partnership, on the economy of adopter counties between 2007 and 2010. The results from this study indicate the program has no conclusive effects on five general indicators of local economic and entrepreneurial activity.

Keywords

Entrepreneurship policy Economic growth Tax credits Public policy 

JEL Classifications

M13 M21 R58 F63 L26 

Notes

Acknowledgment

The authors would like to thank Network Kansas for their support in providing tax credit data per county.

References

  1. Acs, Z. J., Autio, E., & Szerb, L. (2014). National systems of entrepreneurship: Measurement issues and policy implications. Research Policy, 43(3), 476–494. doi:10.1016/j.respol.2013.08.016.CrossRefGoogle Scholar
  2. Acs, Z. J., & Sanders, M. (2013). Knowledge spillover entrepreneurship in an endogenous growth model. Small Business Economics, 41, 775–795. doi:10.1007/s11187-013-9506-8.CrossRefGoogle Scholar
  3. Acs, Z. J., & Szerb, L. (2007). Entrepreneurship, economic growth and public policy. Small Business Economics, 28, 109–122. doi:10.1007/s11187-006-9012-3.CrossRefGoogle Scholar
  4. Anselin, L. (1988). Spatial econometrics: Methods and models. Boston: Kluwer Academic Publishers. doi:10.1007/978-94-015-7799-1.CrossRefGoogle Scholar
  5. Anselin, L., & Bera, A. (1998). Spatial dependence in linear regression models with an introduction to spatial econometrics. In A. Ullah & D. Giles (Eds.), Handbook of applied economic statistic. New York: Marcel Decker Inc.Google Scholar
  6. Arrow, K. (1962). Economic welfare and the allocation of resources for innovation. In R. Nelson (Ed.), The rate and direction of economic activity. New York: Princeton University Press.Google Scholar
  7. Artz, G.M., Orazem, P., & Otto, D. (2005). Facilities in the nonmetropolitan Midwest: A difference-in-differences approach. Iowa State University Department of Economics, Working paper # 03003Google Scholar
  8. Assibey-Yeboah, M., & Mohsin, M. (2011). Investment tax credit in an open economy with external debt and imperfect capital mobility. Economic Record, 87(279), 629–642. doi:10.1111/j.1475-4932.2011.00732.x.CrossRefGoogle Scholar
  9. Audretsch, D. B., Carree, M. A., van Stel, A. J., & Thurik, A. R. (2002). Impeded industrial restructuring: The growth penalty. Kyklos, 55(1), 81–97. doi:10.1111/1467-6435.00178.CrossRefGoogle Scholar
  10. Audretsch, D.B., Grilo, I., & Thurik, R. (2007). Handbook of research on entrepreneurship policy. ISBN: 978-1-84542-409-1Google Scholar
  11. Audretsch, D. B., & Keilbach, M. (2004). Entrepreneurship capital and economic performance. Regional Studies, 38(8), 113–124. doi:10.1080/0034340042000280956.CrossRefGoogle Scholar
  12. Audretsch, D. B., & Thurik, A. R. (2001). What is new about the new economy: Sources of growth in the managed and entrepreneurial economies. Industrial and Corporate Change, 19, 795–821. doi:10.1093/icc/10.1.267.Google Scholar
  13. Audretsch, D.B., & Thurik, A.R. (2004). A model of the entrepreneurial economy. Discussion Papers on Entrepreneurship, Growth and Public Policy #1204, Max Planck Institute. ISSN: 1613-8333Google Scholar
  14. Auerbach, A.J., & Summers, L.H. (1979). The investment tax credit: An evaluation. NBER Working paper series No.404, NBER, Cambridge, MA, 1–47Google Scholar
  15. Baker, T., & Nelson, R. E. (2005). Creating something from nothing: Resource construction thru entrepreneurial bricolage. Administrative Science Quarterly, 50, 329–366. doi:10.2189/asqu.2005.50.3.329.CrossRefGoogle Scholar
  16. Bartik, T. J. (1991). Who benefits from economic development policies?. Kalamazoo: W.E. Upjohn Institute. doi:10.17848/9780585223940.CrossRefGoogle Scholar
  17. Bartik, T. J. (1994). A better evaluation is needed for economic development programs to thrive. Economic Development Quarterly, 8(2), 99–106. doi:10.1177/089124249400800201.Google Scholar
  18. Betz, M. R., Partridge, M. D., Kraybill, D. S., & Lobao, L. (2012). Why do localities provide economic development incentives? Geographic competition, political constituencies, and government capacity. Growth and Change, 43(3), 361–391. doi:10.1111/j.1468-2257.2012.00590.x.CrossRefGoogle Scholar
  19. Bozeman, B., & Link, A. (1985). Public support for private R&D: The case of the research tax credit. Journal of Policy Analysis and Management, 4(3), 370–382. doi:10.2307/3324191.CrossRefGoogle Scholar
  20. Brinton, M.C., & Nee, V. (1998). The new institutionalism in sociology. New York: Russell Sage Foundation. ISBN: 0871541394, 9780871541390Google Scholar
  21. Busom, I. (2000). An empirical evaluation of the effects of R&D subsidies. Economics of Innovation and New Technology, 9, 111–148. doi:10.1080/10438590000000006.CrossRefGoogle Scholar
  22. Buss, T. F. (2001). The effect of state tax incentives on economic growth and firm location decisions: An overview of the literature. Economic Development Quarterly, 15(1), 90–105. doi:10.1177/089124240101500108.CrossRefGoogle Scholar
  23. Carree, M.A., & Thurik, A.R. (2002). The Impact of entrepreneurship on economic growth. In Z. Acs and D. Audretsch (Eds.), International handbook of entrepreneurship research (vol. 1, pp. 437–471). doi:10.1007/0-387-24519-7_17.
  24. Cassar, G. (2004). The financing of business start-ups. Journal of Business Venturing, 19, 261–283. doi:10.1016/S0883-9026(03)00029-6.CrossRefGoogle Scholar
  25. Catozzella, A., & Vivarelli, M. (2011). Beyond additionality: Are innovation subsidies counterproductive? Institute for the Study of Labor (IZA) Discussion paper series No. 5746Google Scholar
  26. Chi, K. (1994). State business incentives: Options for the future. Lexington: Council of State Governments.Google Scholar
  27. Clarke, S.E., & Gaile, G.L. (1998). The work of cities. Minneapolis: University of Minnesota Press. ISBN: 0816628920, 9780816628926Google Scholar
  28. Coleman Jr., B.T. (2005). Location incentives and the negative commerce clause: A farewell to arms. Marquette Law Review, 89, 583. http://scholarship.law.marquette.edu/mulr/vol89/iss3/5
  29. Czarnitzki, D., Hanel, P., & Rosa, J.M. (2004). Evaluating the impact of R&D tax credits on innovation: A microeconometric study on Canadian firms. ZEW Discussion paper No. 04–77. ftp://ftp.zew.de/pub/zew-docs/dp/dp0477.pdf
  30. David, P. A., Hall, B. H., & Toole, A. A. (2000). Is public R&D a complement or substitute for private R&D? A review of econometric evidence. Research Policy, 29, 497–529. doi:10.1016/S0048-7333(99)00087-6.CrossRefGoogle Scholar
  31. Dewees, S., Lobao, L., & Swanson, L. E. (2003). Local economic development in an age of devolution: The question of rural localities. Rural Sociology, 68(2), 182–206. doi:10.1111/j.1549-0831.2003.tb00134.x.CrossRefGoogle Scholar
  32. Drabenstott, M., Novack, N., & Abraham, B. (2003). Main streets of tomorrow: Growing and financing rural entrepreneurs: A conference summary. Economic review, third quarter, Federal Reserve Bank of Kansas CityGoogle Scholar
  33. Feiock, R. C. (2002). A quasi-market framework for development competition. Journal of Urban Affairs, 24(2), 123–142. doi:10.1111/1467-9906.00118.CrossRefGoogle Scholar
  34. Fisher, P. S., & Peters, A. H. (1998). Industrial incentives: Competition among American states and cities. Kalamazoo: W.E. Upjohn Institute. doi:10.17848/1075-8445.5(2)-1.CrossRefGoogle Scholar
  35. Fritsch, M. (2014). New firm formation and sustainable regional economic development-relevance, empirical, evidence, policies (February 27, 2014). The ICER Working Paper Series on Entrepreneurship and Innovation WP8. SSRN: http://ssrn.com/abstract=2402229
  36. Fritsch, M. & Mueller, P. (2004). The effects of new firm formation on regional development over time. Discussion Papers on Entrepreneurship, Growth and Public Policy #3604, Max Planck InstituteGoogle Scholar
  37. Fritsch, M., & Storey, D. J. (2014). Entrepreneurship in a regional context: Historical roots, recent developments and future challenges. Regional Studies, 48(6), 939–954. doi:10.1080/00343404.2014.892574.CrossRefGoogle Scholar
  38. Fritsch, M., & Wyrwich, M. (2014). The long persistence of regional levels of entrepreneurship: Germany, 1925–2005. Regional Studies, 48(6), 955–973. doi:10.1080/00343404.2013.816414.CrossRefGoogle Scholar
  39. Gabe, T. M., & Kraybill, D. S. (2002). The effect of state economic development incentives on employment growth of establishments. Journal of Regional Science, 42(4), 703–730.CrossRefGoogle Scholar
  40. Gilbert, B. A., Audretsch, D. B., & McDougall, P. (2004). The emergence of entrepreneurship policy. Small Business Economics, 22(3–4), 313–323. doi:10.1023/B:SBEJ.0000022235.10739.a8.CrossRefGoogle Scholar
  41. González X., Jaumandreu J., & Pazó C. (2005). Barriers to Innovation and Subsidy Effectiveness. RAND Journal of Economics, 36, 930–949. Stable URL: http://www.jstor.org/stable/4135264
  42. Greenberg, E., & Reeder, R. (1998). Who benefits from business assistance programs? Results of the ERS rural manufacturing survey (Agricultural Information Bulletin No. 736-04). Washington, DC: US Department of AgricultureGoogle Scholar
  43. Greenstone, M., & Gayer, T. (2007). Quasi-experimental and experimental approaches to environmental economics. SSRN: http://ssrn.com/abstract=1001330
  44. Haining, R. (1990). Spatial data analysis in the social and environmental sciences. New York, NY: Cambridge University Press. ISBN: 9780521448666Google Scholar
  45. Hanel, P. (2003). Impact of government support programs on innovation by Canadian manufacturing firms. University Center for research on science and technology (CIRST), Research paper 2003–2009, MontrealGoogle Scholar
  46. Hicks, M. J., & LaFaive, M. (2011). The influence of targeted economic development tax incentives on county economic growth: Evidence from Michigan’s MEGA credits. Economic Development Quarterly, 25(2), 193–205. doi:10.1177/0891242410395135.CrossRefGoogle Scholar
  47. Holcombe, R. G. (1998). Entrepreneurship and economic growth. The Quarterly Journal of Austrian Economics, 1(2), 45–62. doi:10.1007/s12113-998-1008-1.CrossRefGoogle Scholar
  48. Holtz-Eakin, D., Joulfaian, D., & Rosen, H. S. (1994). Sticking it out: Entrepreneurial survival and liquidity constraints. Journal of Political Economy, 102, 53–75. doi:10.3386/w4494.CrossRefGoogle Scholar
  49. Howard, M. A. (1994). A corporate welfare reform agenda: How to curb state tax breaks for economic development. Washington DC: American Federation of State County and Municipal Employees.Google Scholar
  50. Huggins, R., & Izushi, H. (2007). Competing for knowledge: Creating, connecting and growing. London: Routledge.Google Scholar
  51. Johnson, T. G. (2007). Measuring the benefits of entrepreneurship development policy. ICFAI Journal of Entrepreneurship Development, 4(2), 35–44.Google Scholar
  52. Jones, B.D., & Bachelor, L.W. (1986). The sustaining hand. Lawrence, KS: Kansas University Press. ISBN: 978-0700605996Google Scholar
  53. Kansas Department of Commerce (2004). Kansas Economic Growth Act. http://kdoch.state.ks.us/KDOCHdocs/AD/economic_growth_act.pdf
  54. Kneller, R., & McGowan, D. (2011, May). Tax policy and firm entry and exit dynamics: Evidence from OECD countries. Retrieved October 27, 2011, from SSRN website: http://ssrn.com/abstract=1857458
  55. Kolko, J., & Neumark, D. (2010). Do some enterprise zones create jobs? Journal of Policy Analysis and Management, 29(1), 5–38. doi:10.1002/pam.20477.CrossRefGoogle Scholar
  56. Koski, H., & Pajarinen, M. (2013). The role of business subsidies in job creation of start-ups, gazelles and incumbents. Small Business Economics, 41, 195–214. doi:10.1007/s11187-012-9420-5.CrossRefGoogle Scholar
  57. Kotler, P., Haider, D.H., & Rein, I. (1993). Marketing places: Attracting investment, industry, and tourism in cities, states, and nations. New York: Free Press. ISBN-13: 978-0743236362Google Scholar
  58. Lobao, L., & Kraybill, D. S. (2005). The emerging roles of county governments in metropolitan and nonmetropolitan areas: Findings from a national survey. Economic Development Quarterly, 19(3), 245–259. doi:10.1177/0891242405276514.CrossRefGoogle Scholar
  59. Logan, J. R., Whaley, R. B., & Kyle, C. (1997). The character and consequences of growth regimes—An assessment of 20 years of research. Urban Affairs Review, 32(5), 603–630. doi:10.1177/107808749703200501.CrossRefGoogle Scholar
  60. Lorenz, E. C. (1995). TJTC and the promise and reality of redistributive vouchering and tax credit policy. Journal of Policy Analysis and Management, 14(2), 270–290. doi:10.2307/3325153.CrossRefGoogle Scholar
  61. Lundstrom, A., & Boter, H. (2003). The case of Sweden. In Anders Lundstrom (Ed.), Towards an entrepreneurship policy: A Nordic perspective. ISBN: 91-89301-15-3Google Scholar
  62. Lundstrom, A. & Stevenson, L.A. (2005) Entrepreneurship Policy: Theory and Practice. Boston, MA: Springer. ISBN: 978-0-387-24140-1Google Scholar
  63. Markley, D., Pages, E., Dabson, B., Johnson, T., Lawrence, S., Yanosy, S., & Dabson, K. (2008). Creating an Entrepreneurial Appalachian Region: Findings and lessons from an Evaluation of the Appalachian Regional Commission’s Entrepreneurship Initiative 19972005. Rupri Center for Rural EntrepreneurshipGoogle Scholar
  64. Minniti, M., & Nardone, C. (2007). Being in someone else’s shoes: The role of gender in nascent entrepreneurship. Small Business Economics, 28(2–3), 223–238. doi:10.1007/s11187-006-9017-y.CrossRefGoogle Scholar
  65. Mueller, D. C. (1989). Public choice II: A revised edition of public choice. Cambridge surveys of economic literature. Cambridge: Cambridge University Press.Google Scholar
  66. National Venture Capital Association. (2001). Venture capital investment activity returns to 1999 levels. http://www.nvca.org/nvca05_02_01a.html
  67. Network Kansas. (2011). Entrepreneurship E-Communities. http://networkkansas.com/communities/entrepreneurship-(e)-communities
  68. North, D. C. (1981). Structure and change in economic history. New York: Norton. doi:10.2307/2232785.Google Scholar
  69. North, D.C. (1990). Institutions, institutional change and economic performance. Cambridge, England: Cambridge University Press. ISBN: 9780521397346Google Scholar
  70. Pagano, M.A., & Bowman, A. (1995). The state of American federalism, 1994–1995. Publius, 25(3), 1–21. ISSN: 0048-5950Google Scholar
  71. Pereira, A. M. (1994). On the effects of investment tax credits on economic efficiency and growth. Journal of Public Economics, 53, 437–461. doi:10.1016/0047-2727(94)90045-0.CrossRefGoogle Scholar
  72. Peters, A., & Fischer, P. (2004). The failures of economic development incentives. Journal of the American Planning Association, 70, 27–37. doi:10.1080/01944360408976336.CrossRefGoogle Scholar
  73. Peterson, P.E. (1981). City limits. Chicago, IL: University of Chicago Press. ISBN: 9780226922645Google Scholar
  74. Plummer, L. A. (2010). Spatial dependence in entrepreneurship research: Challenges and methods. Organizational Research Methods, 13(1), 146–175. doi:10.1177/1094428109334199.CrossRefGoogle Scholar
  75. Reese, L. A. (2006). Not just another determinants piece: Path dependency and local tax abatements. Review of Policy Research, 23, 491–504. doi:10.1111/j.1541-1338.2006.00212.x.CrossRefGoogle Scholar
  76. Reynolds, P. D., Bosma, N., & Autio, E. (2005). Global entrepreneurship monitor data collection design and implementation 1998–2003. Small Business Economics, 24, 205–231. doi:10.1007/s11187-005-1980-1.CrossRefGoogle Scholar
  77. Román, C., Congregado, E., & Millán, J. M. (2012). Determinants of self-employment survival in Europe. Small Business Economics, 38(2), 231–258. doi:10.1007/s11187-010-9260-0.CrossRefGoogle Scholar
  78. Romer, P. M. (1986). Increasing returns and economic growth. American Economic Review, 94, 1002–1037.Google Scholar
  79. Rubin, I., & Rubin, H. (1987). Economic development incentives: The poor pay more. Urban Affairs Quarterly, 22, 32–62.Google Scholar
  80. Saiz, M. (2001). Politics and economic development: Why governments adopt different strategies to induce economic growth. Policy Studies Journal, 29(2), 203–214. doi:10.1111/j.1541-0072.2001.tb02086.x.CrossRefGoogle Scholar
  81. Schramm, C. J. (2006). The entrepreneurial imperative. New York: Collins. ISBN: 978-0060841638.Google Scholar
  82. Szerb, L., Rappai, G., Makra, Z., & Terjesen, S. (2007). Informal investment in transition economies: Individual characteristics and clusters. Small Business Economics, 28(2–3), 257–271. doi:10.1007/s11187-006-9019-9.CrossRefGoogle Scholar
  83. Thomas, K. P. (2000). Competing for capital: Europe and North America in a global era. Washington, DC: Georgetown University Press. ISBN: 0-87840-808-8.Google Scholar
  84. Thompson, V. A. (1965). Bureaucracy and innovation. Administrative Science Quarterly, 10(1), 1–20. doi:10.2307/2391646.CrossRefGoogle Scholar
  85. Thurik, A. R. (2007). Entreprenomics: Entrepreneurship, economic growth and policy. In Z. Acs, D. B. Audretsch, & R. Strom (Eds.), Entrepreneurship, growth and public policy Cambridge University Press.Google Scholar
  86. Tobler, W. R. (1970). A computer movie simulating urban growth in the Detroit region. Economic Geography, 46, 234–240. doi:10.2307/143141.CrossRefGoogle Scholar
  87. Tominc, P., & Rebermik, M. (2007). Growth aspirations and cultural support for entrepreneurship: A comparison of post-socialist countries. Small Business Economics, 28(2–3), 239–255. doi:10.1007/s11187-006-9018-x.CrossRefGoogle Scholar
  88. Turner, R. (1990). New rules for the growth game: The use of rational state standards in land use policy. Journal of Urban Affairs, 12, 35–47. doi:10.1111/j.1467-9906.1990.tb00527.x.CrossRefGoogle Scholar
  89. Wallsten, S., (2000). The effect of government-industry R&D programs on private R&D: the case of the small business innovation research program. RAND Journal of Economics, 31, 82–100. http://www.jstor.org/stable/2601030
  90. Watson, D. J. (1995). The new civil war: Government competition for economic development. New York: Praeger. ISBN: 9780275947880.Google Scholar
  91. Wennekers, A. R. M., van Stel, A. J., Thurik, A. R., & Reynolds, P. D. (2005). Nascent entrepreneurship and the level of economic development. Small Business Economics, 24(3), 293–309. doi:10.1007/s11187-005-1994-8.CrossRefGoogle Scholar
  92. Wilder, M., & Rubin, B. (1996). Rhetoric versus reality: A review of studies on state enterprise zone programs. Journal of the American Planning Association, 62, 472–492. doi:10.1080/01944369608975713.CrossRefGoogle Scholar
  93. Wu, Y. (2005). The effects of state R&D tax credits in stimulating private R&D expenditure: A cross-state empirical analysis. Journal of Policy Analysis and Management, 24(4), 785–802. doi:10.1002/pam.20138.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.School of Policy, Government, and International AffairsGeorge Mason UniversityArlingtonUSA
  2. 2.Department of Agricultural and Applied Economics & Truman School of Public AffairsUniversity of MissouriColumbiaUSA

Personalised recommendations