Can Capital Inflows Stifle Local Entrepreneurship?: Evidence from the Tax Cuts and Jobs Act of 2017

Jiajie Xu

doi:10.2139/ssrn.4082335

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Can Capital Inflows Stifle Local Entrepreneurship?: Evidence from the Tax Cuts and Jobs Act of 2017

Working paper

Open access

Can Capital Inflows Stifle Local Entrepreneurship?: Evidence from the Tax Cuts and Jobs Act of 2017

Jiajie Xu

SSRN

04/25/2022

DOI: 10.2139/ssrn.4082335

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https://doi.org/10.2139/ssrn.4082335View

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Abstract

This paper examines the impact of capital inflow on local entrepreneurship. Using the Opportunity Zone policy as a quasi-natural experiment, the paper reveals a dichotomy: capital inflows to economically distressed areas lead to a decline in local entrepreneurship. Motivated by a simple model, I show that increased private investments favor existing firms, discouraging new business formation, particularly in sectors with local competition. Further, the policy negatively affected local employment and was not effective in attracting population inflows or reducing income inequality. Future policy designs should consider potential distributional effects among firms when offering market-based tax incentives.

Entrepreneurship

Investor Tax Credits

Private Investment

Place-Based Policies

Opportunity Zones

Local Market Competition

Access to Finance

Details

Title: Subtitle: Can Capital Inflows Stifle Local Entrepreneurship?: Evidence from the Tax Cuts and Jobs Act of 2017
Creators: Jiajie Xu
Resource Type: Working paper
DOI: 10.2139/ssrn.4082335
Publisher: SSRN
Number of pages: 76 pages
Alternative title: The Effect of Tax Incentives on Local Private Investments and Entrepreneurship
Language: English
Date posted: 04/25/2022
Date updated: 03/21/2024
Academic Unit: Finance
Record Identifier: 9984380622002771

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