Magnus Henrekson

Abstract: One response to uncertainty and transactions costs in VC-finance is to compensate founders and other key personnel with stock options under complex contracts. Entrepreneurs are granted stock options contingent on firm performance, vesting and other criteria. While most countries tax stock options as labor earnings, the United States allow them to be taxed at a low capital gains tax rate. The interaction of favorable tax treatment and inherent advantages has led to near universal use of stock options in American venture capital deals, while this remains less common in Europe.The effective tax treatment of stock options depends on tax practices and is not readily observed using statutory tax rates. We asked the local offices of the tax consultancy firm PwC to calculate the effective tax rate for a standardized entrepreneurial case in 22 countries, finding that countries with favorable tax treatment have more VC activity. A major advantage of this tax policy is that it narrowly targets entrepreneurial startups without requiring broad tax cuts.

TL;DR: In this article, the authors study the evolution of modern Swedish wealth taxation from its in-troduction in ** 1911 until it was abolished in 2007 and describe the rules concerning valuation of assets, deductions/exemptions and tax schedules to characterize effective wealth tax schedules.

TL;DR: This paper found that Europe has the same or higher rates of entrepreneurship than the U.S. and East Asia, while China performs surprisingly well in Schumpeterian entrepreneurship, especially compared to Eastern Europe.

Abstract: It is widely recognized that the supply of entrepreneurial talent is likely to be important for economic growth, innovation and job creation. In Henrekson (2005) it was shown that the supply of productive entrepreneurship is likely to be reduced by the kind of tax and welfare arrangements that prevail in a mature welfare state. Welfare state institutions developed mostly during a period when it was common among politicians and economists to assume that individual entrepreneurship and new firms were of minor importance. However, in an environment where entry, exit and turnover of firms are important for growth, and where scale-economies are less important, this kind of model may be more problematic. There are a number of measures that can be implemented to strengthen entrepreneurial incentives within extensive welfare states but their implementation is unlikely since there are strong vested interests, including the incumbent business elite, defending the current model. A number of objections against this analysis were raised by James K. Galbraith and Ronald Dore in the previous issue of Industrial and Corporate Change. In this reply I address these objections and provide a more detailed exploration of some important issues currently facing the Swedish welfare state.

TL;DR: This paper present a rebuttal to that piece by an economist who believes neoclassical medicine has worked. But they do not address the failure of conventional economics in Sweden, which is a concern of the authors of this paper.