Start-ups, Venture Capitalists and the Capital Gains Tax
Journal
Journal of Public Economics
ISSN
0047-2727
ISSN-Digital
1879-2316
Type
journal article
Date Issued
2004-04-01
Author(s)
Abstract
A model of start-up finance with double moral hazard is proposed. Entrepreneurs have ideas and technical competence, but lack own resources as well as commercial experience. Venture capitalists (VCs) provide start-up finance and managerial support. Both types of agents thus jointly contribute to the firm's success, but neither type's effort is verifiable. We find that the market equilibrium is biased towards inefficiently low entrepreneurial effort and venture capital support. In this situation, the capital gains tax is particularly harmful. The introduction of a small tax impairs effort and advice and leads to a first-order welfare loss. Several other policies towards venture capital and start-up entrepreneurship are also investigated.
Language
English
Keywords
Venture capital
capital gains taxation
double moral hazard.
HSG Classification
not classified
Refereed
No
Publisher
Elsevier
Publisher place
Amsterdam
Volume
88
Number
5
Start page
1011
End page
1042
Pages
32
Subject(s)
Eprints ID
2115
File(s)![Thumbnail Image]()
Name
IFFDP0110.pdf
Size
260.4 KB
Format
Adobe PDF
Checksum (MD5)
56aa5f2bdcfb4b790f79a53043bcf4f9