Taxes and Venture Capital Support

Topics:
Taxes,
Venture Capital
Tags:
Finance,
Financial Planning,
Financing Startups,
Free Trade,
Investment,
Springer Science+Business Media,
Taxes,
Venture Capital
Source:
Springer Science+Business Media

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Overview: In this paper a model of start-up finance is set up under double moral hazard. Entrepreneurs lack own resources and business experience to develop their ideas. Venture capitalists can provide start-up finance and commercial support. The effort put forth by either agent contributes to the firm's success, but is not verifiable. As a result, the market equilibrium is biased towards inefficiently low venture capital support. The capital gains tax becomes especially harmful, as it further impairs advice and causes a first-order welfare loss. Once the capital gains tax is in place, limitations on loss off-set may paradoxically contribute to higher quality of venture capital finance and welfare.

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Format: PDF | Size: 167KB | Date: Mar 2004 | Pages: 26

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