Entrepreneurs flourish in a large public sector

A surprising result of new CBS research shows that the combination of a large public sector and a high tax burden is very beneficial to entrepreneurship.  The somehow stereotypical perception is that a low tax burden and as a consequence a small public sector provides more economic freedom and better opportunities for entrepreneurs.

Survival of the fittest?
According to Nicolai J. Foss, Professor at the Department of Strategic Management and Globalization, there can be two reasons that Danish conditions create a better environment for entrepreneurs. First, the public sector with all its research institutions prepares the way for the entrepreneurs. Second, a large public sector curbs entrepreneurial activities to an extent which only secures the survival of the fittest.

- The state gains so much control of the economic activities of a country that a large part of the entrepreneurial activities are phased out through for instance high taxes and transfer payment. If that is the case, only the best ideas survive. And these ideas have the most impact on the development of productivity, says Nicolai J. Foss.

More research
The title of the research paper is ”How Institutions of Liberty Promote Entrepreneurship and Growth”. It is written by Nicolai J. Foss and Christian Bjørnskov, Associate Professor from Aarhus University. Their research has been published in the latest edition of the Canadian think tank Fraser Institute's "Economic Freedom of the World" Economic freedom is measured on parameters such as a well-functioning judicial system, the inviolability of ownership rights, quality of monetary policy, freedom to engage in international trade, and regulation of the economy.

Nicolai J. Foss expresses a need for more research in this area:
- The fact that we have not gotten to the bottom of the connection between entrepreneurship and growth may suffer the unfortunate consequence that new legislation will be too short-term, he says.

For more information, contact Nicolai J. Foss at +45 38152562 or email: njf.smg@cbs.dk or Mikael Koldby, Public Relations Officer at 3815 3722