Tax Policy,Corruption And Innovative Entrepreneurship

Innovative entrepreneurs,who play important roles in economic development,are influenced by institutional context in which tax policy and corruption are important consideration.In this paper,I investigate how tax rates,and the interaction between corruption and tax rates,influence the propensity for individual to become an innovative entrepreneur using both individual level and country level data from 2005 to 2013.We use a series of Probit estimations as well as several robustness checks to test these effects,using relevant controls for economic development,the individual characteristics,and other regulatory and tax policy measures.We find that higher tax rates and higher time cost to pay taxes consistently discourage innovative entrepreneurship.Further,we find that although the direct influence of corruption on innovative entrepreneurship is also consistently negative,the interaction influence of corruption and tax rate is positive.This indicates that corruption can offset the negative influence of high taxes on innovative entrepreneurship.We discuss the implications of our findings for policymakers and future research.