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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2023 Grand Challenge: Workforce Disrupted
Market-Based Solutions to Vital Economic Issues
May 1, 2020

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


Angel investor tax credits are commonly used around the world to spur entrepreneurship. Exploiting the staggered implementation of these tax credits in 31 U.S. states, we find that while they increase angel investment, marginal investments flow to relatively low-growth firms. Tax credits induce entry by non-professional, inexperienced investors, and are often received by firm insiders. Consistent with these findings, we show that angel tax credits have no significant effect on state-level entrepreneurial activity or on beneficiary firm outcomes relative to failed applicants. Overall, the results raise concerns about whether investor tax credits achieve their stated goal of promoting high-growth entrepreneurship.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

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