Skip to main content
SpringerLink
Log in

Taxation and Venture Capital Backed Entrepreneurship

  • Published:
International Tax and Public Finance Aims and scope Submit manuscript

Abstract

In recent years, venture capital has increasingly become a factor in the financing of new firms. We examine how the value of mature firms determines the incentives of entrepreneurs to start up new firms and of venture capitalists to finance and advise them. We examine how capital gains taxes as well as subsidies to start-up costs of new firms affect venture capital backed entrepreneurship. We also argue that dividend and capital gains taxes on mature firms have important consequences for start-up firms as well.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Audretsch, D. B. and E. Lehmann. (2002). “Debt or Equity?” The Role of Venture Capital in Financing the New Economy in Germany, CEPR DP 3656.

  • Boadway, R., M. Marchand and P. Pestiau. (1991). “Optimal Linear Income Taxation in Models of Occupational Choice,” Journal of Public Economics 46, 133–162.

    Google Scholar 

  • Boadway, R. and J. F. Tremblay. (2003). “Public Economics and Startup Entrepreneurs.” In V. Kanniainen and C. Keuschnigg (eds.), Venture Capital, Entrepreneurship and Public Policy. CESifo Seminar Series, Cambridge: MIT Press (forthcoming).

  • Bottazzi, L. and M. Da Rin. (2002). “Venture Capital in Europe and the Financing of Innovative Companies,” Economic Policy 34, 231–269.

    Google Scholar 

  • Casamatta, C. (2003). “Financing and Advising: Optimal Financial Contracts with Venture Capitalists,” Journal of Finance 58, 2058–2085.

    Google Scholar 

  • Cullen, J. B. and R. H. Gordon. (2002). “Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S.,” NBER WP 9015.

  • de Meza, D. (2002). “Overlending?” Economic Journal 112, F17–F31.

    Google Scholar 

  • de Meza, D. and D. C. Webb. (1987). “Too Much Investment: A Problem of Asymmetric Information,” Quarterly Journal of Economics 102, 281–292.

    Google Scholar 

  • European Commission. (1998). “Risk Capital: A Key to Job Creation in the European Union.” Brussels.

  • European Commission. (2000). “Innovation in a Knowledge-Driven Economy.” Brussels.

  • European Commission. (2003). “Innovation Policy: Updating the Union's Approach in the Context of the Lisbon Strategy.” Brussels.

  • EVCA (European Private Equity and Venture Capital Association). (2003). “Benchmarking European Tax & Legal Environments.”

  • Fuest, C., B. Huber and S. B. Nielsen. (2003). “Why Is the Corporate Tax Rate Lower Than the Personal Tax Rate? The Role of New Firms,” Journal of Public Economics 87, 157–174.

    Google Scholar 

  • Gentry,W.M. and R. G. Hubbard. (2001). “Tax Policy and Entry into Entrepreneurship.”Working Paper, Graduate School of Business, Columbia University.

  • Gompers, P. A. and J. P. Lerner. (1998). “What Drives Venture Capital Fundraising?” Brookings Papers on Economic Activity--Microeconomics, pp. 149–192.

  • Gompers, P. A. and J. Lerner. (1999). The Venture Capital Cycle. Cambridge: MIT Press.

    Google Scholar 

  • Gompers, P. A. and J. Lerner. (2001). “The Venture Capital Revolution,” Journal of Economic Perspectives 15, 145–168.

    Google Scholar 

  • Gordon, R. H. (1998). “Can High Personal Tax Rates Encourage Entrepreneurial Activity?” IMF Staff Papers 45, 49–80.

    Google Scholar 

  • Hart, O. (2001). “Financial Contracting,” Journal of Economic Literature 39, 1079–1100.

    Google Scholar 

  • Hege, U., F. Palomino and A. Schwienbacher. (2003). “Determinants of Venture Capital Performance: Europe and the United States.” RICAFE Working Paper No. 001, Financial Markets Group, London School of Economics.

  • Hellmann, T. and M. Puri. (2000). “The Interaction Between Product Market and Financing Strategy: The Role of Venture Capital,” Review of Financial Studies 13, 995–984.

    Google Scholar 

  • Hellmann, T. and M. Puri. (2002). “Venture Capital and the Professionalization of Start-Up Firms,” Journal of Finance 57, 169–197.

    Google Scholar 

  • Holmstrom, B. (1982). “Moral Hazard in Teams,” Bell Journal of Economics 13, 324–340.

    Google Scholar 

  • Inderst, R. and H.M. Mueller. (2004). “The Effect of Capital Market Characteristics on the Value of Start-Up Firms,” Journal of Financial Economics 72, 319–356.

    Google Scholar 

  • Kaplan, S. N. and P. Stromberg. (2001). “Venture Capitalists as Principals: Contracting, Screening, and Monitoring,” American Economic Review 91, 426–430.

    Google Scholar 

  • Kaplan, S. N., F. Martel and P. Stromberg. (2003). “How Do Legal Differences and Learning Affect Financial Contracts?” NBER Working Paper 10097.

  • Keuschnigg, C. (2003). “Optimal Public Policy for Venture Capital Backed Innovation.” CEPR DP 3850.

  • Keuschnigg, C. (2004). “Taxation of a Venture CapitalistWith a Portfolio of Firms,” Oxford Economic Papers 56, 1–22.

    Google Scholar 

  • Keuschnigg, C. and S. B. Nielsen. (2003a). “Tax Policy, Venture Capital, and Entrepreneurship,” Journal of Public Economics 87, 175–203.

    Google Scholar 

  • Keuschnigg, C. and S. B. Nielsen. (2003b). “Taxes and Venture Capital Support,” European Finance Review 7, 515–539.

    Google Scholar 

  • Keuschnigg, C. and S. B. Nielsen. (2003c). “Taxation andVenture Capital Backed Entrepreneurship: Mathematical Appendix.” http: www.iff.unisg.ch, page Research/DP Public Finance.

  • Keuschnigg, C. and S. B. Nielsen. (2004). “Start-Ups, Venture Capitalists, and the Capital Gains Tax,” Journal of Public Economics 88, 1011–1042.

    Google Scholar 

  • Kortum, S. and J. P. Lerner. (2000). “Assessing the Contribution of Venture Capital to Innovation,” Rand Journal of Economics 31, 674–692.

    Google Scholar 

  • McGee, M. K. (1998). “Capital Gains Taxation and New Firm Investment,” National Tax Journal 51, 653–673.

    Google Scholar 

  • Poterba, J. M. (1989a). “Capital Gains Tax Policy Toward Entrepreneurship,” National Tax Journal 42, 375–389.

    Google Scholar 

  • Poterba, J. M. (1989b). “Venture Capital and Capital Gains Taxation.” In L. H. Summers (ed.), Tax Policy and the Economy. Vol. 3, Cambridge: MIT Press, pp. 47–67.

    Google Scholar 

  • Repullo, R. and J. Suarez. (2004). “Venture Capital Finance: A Security Design Approach,” Review of Finance 8, 75–108.

    Google Scholar 

  • Rosen, H. S. (2003). “Entrepreneurship and Taxation: Empirical Evidence.” In V. Kanniainen and C. Keuschnigg (eds.), Venture Capital, Entrepreneurship and Public Policy. CESifo Seminar Series, Cambridge: MIT Press (forthcoming).

  • Schmidt, K. M. (2003). “Convertible Securities and Venture Capital Finance,” Journal of Finance 43, 1139–1166.

    Google Scholar 

  • Sinn, H.-W. (1991). “The Vanishing Harberger Triangle,” Journal of Public Economics 45, 271–300.

    Google Scholar 

  • Sinn, H.-W. (1993). “The Birth of Foreign Subsidiaries.” In H. Herberg and N. V. Long (eds.), Trade, Welfare and Economic Policies, Essays in Honor of Murray Kemp. Ann Arbor: Michigan University Press.

    Google Scholar 

  • Stiglitz, J. E. and A.Weiss. (1981). “Credit Rationing in Markets with Imperfect Information,” American Economic Review 71, 393–410.

    Google Scholar 

  • Ueda, M. (2003). “Bank Versus Venture Capital: Project Evaluation, Screening, and Expropriation,” Journal of Finance (forthcoming).

  • Weichenrieder, A. (1995). “Besteuerung und Direktinvestition.” Tübingen: Mohr (Paul Siebeck).

Download references

Author information

Authors and Affiliations

  1. CEPR and CESifo, University of St. Gallen (IFF-HSG), Varnbuelstrasse 19, CH-9000, St. Gallen, Switzerland

    Christian Keuschnigg

  2. Department of Economics, Copenhagen Business School, EPRU, CEPR and CESifo, Solbjerg Plads 3, DK-2000, Frederiksberg, Denmark

    Søren Bo Nielsen

Authors
  1. Christian Keuschnigg
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Søren Bo Nielsen
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Keuschnigg, C., Nielsen, S.B. Taxation and Venture Capital Backed Entrepreneurship. International Tax and Public Finance 11, 369–390 (2004). https://doi.org/10.1023/B:ITAX.0000033984.29301.9e

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/B:ITAX.0000033984.29301.9e

Search

Navigation