recent research

What holds people back from starting a business? How does lifting financial constraints help promote entrepreneurship? A recent article by Vyacheslav Mikhed of the Federal Reserve Bank of Philadelphia Consumer Finance Institute,  Sahil Raina of the University of Alberta, and Barry Scholnick of University of Alberta and Federal Reserve Bank of Philadelphia Consumer Finance Institute, explores these questions, and how lifting these economic constraints affected entrepreneurial and self-employed business ventures in Canada from 2002-2016. By comparing lottery winnings to new business endeavors, they found that entrepreneurs face greater financial constraint when starting a business than those who are self-employed.

In a new working paper, Sabrina T. Howell of New York University and Filippo Mezzanotti of Northwestern University provide a systematic review of state angel tax credits. One of the most notable aspects of their research is a seemingly-comprehensive index of all of the relevant programs authorized by states over the past 30 years. The results indicate that angel tax credits have some impact on investment activity but not on economic outcomes. The authors provide evidence that the reason for this seeming discrepancy could be due to program design allowing existing activity to benefit from the new credits.

Jennifer Roche prepared the following summary of a recent Enrico Moretti working paper for the November 2019 issue of the NBER Digest. The summary has been edited here for length and clarity; SSTI comments are in brackets.

A review of recent reports finds the rise of financial technology (fintech) has the potential to improve the financial health and literacy of the traditionally underbanked and decrease discriminatory practices as more people gain access to services and are included in financial markets. However, regulators face new challenges as a result of fintech.

The state of Alaska is in the midst of a funding crisis that could devastate the viability of the University of Alaska, and recent research from a National Bureau of Economic Research (NBER) working paper shows that the loss of funding could have long-term impacts for the system. While highly ranked research universities have been able to adapt to declining subsidies by raising tuition, attracting out-of-state and international students, and sometimes raising funding from philanthropic sources, public universities outside of this top tier have not been able to replace lost dollars, say the paper’s authors.

A recent paper published by SSRN provides a detailed look at the relationship between financial incentives and state fiscal health. The authors control for many potentially-related factors and still find significant, negative impacts of incentives. While the study helps fuel calls for critical analysis and careful implementation of tax incentives, the results may not be as clear cut as some coverage may suggest.

As the technology behind renewable energy continues to advance, recent research finds that the public sector plays an important role in catalyzing innovation. This can be seen in three main ways: by funding basic research on renewable energy in all 50 states; by partnering with cleantech startups; and by supporting cleantech clusters through networks, commercialization assistance, and access to capital. Taken together, this recent research suggests that public-sector partnerships can complement industry’s role in growing the green economy at the federal, state and local levels.

If you are feeling that your money is not buying as much as it used to, that delinquent crime may be increasing as teenagers sit idle, that there is not enough focus on climate change or that corporate responsibility may be lacking, you may validate those feelings through the findings of several recently released research papers. SSTI received notice of the conclusions of five working papers that we thought we’d share.

Recent research revealed that exposure to innovation (e.g., mentorship program and immersive K-12 STEM education experience) during childhood and young adulthood has a greater effect on the decision to pursue careers in innovation than financial incentives. Researchers Alexander M. Bell, Raj Chetty, and their co-authors developed a model to analyze the impact of several factors on inventor career choices. After conducting an analysis using the model, the authors predict that financial incentives, such as top income tax reductions, have limited potential to increase aggregate innovation because they only affect individuals who are exposed to innovation and have no impact on the decisions of star inventors, who matter the most for aggregate innovation.

While competition between states over business incentives and headquarters attraction is often derided, new research published in the Journal of Technology in Society suggests that competition in technology-based economic development is hardly a zero-sum game. In Persistent peers and the rhetoric of state economic competition, author David Schwarzkopf from Bentley University uses cluster analysis to track state progress across 53 TBED measures published by the NSF through its Science & Engineering Indicators series. Over a 12-year study period, Schwarzkopf finds that all 50 states improved on more than half of the variables used, with more than 60 percent of the states moving in the same direction on 80 percent of the measures. He argues that although states clearly compete, more focus is needed on how each state is making progress while also working to improve on their deficiencies.