Three essays on the influence of formal institutions on entrepreneurship.

Influence of institutional economics on firm birth and death: A comparative analysis of hospitality and other industries

“…When the effect of minimum wage on firm births and deaths is measured exclusively, this leads to mixed results. Crum and Gohmann (2016) and Crum (2011) found no significant effect, while Stansel, & Tuszynski (2017), Cumming andLi (2013), andCampbell et al (2012) found that a lower minimum wage encourages more economic growth, firm births and, also, firm deaths.…”

“…Tax freedom is monitored using income and payroll taxes, top marginal income tax rate and threshold, property tax and other taxes, and sales taxes. Researchers have confirmed multiple times the negative relationship between taxation and entrepreneurship Crum, 2011;Cumming & Li, 2013;Stansel, & Tuszynski, 2017). Tax rates are powerful tools and may influence many aspects of investment, consumption, and new firm formation (Mendoza, Razin, & Tesar, 1994).…”

“…The EFNA groups three different indicators associated with government spending, namely general government consumption, transfers and subsidies, and insurance and retirement payments. Crum (2011) found that government size had no significant influence on firm births nor deaths, although most researchers have found that a smaller government has benefits on firm creation in developed economies, like that of the US (Altin et al, 2017;Stansel, & Tuszynski, 2017;Powell & Weber, 2013). The latter is because a small government would require a small budget to operate and finance public programs, meaning that it would impose lower taxes and fewer regulations that affect the cost of opening and operating a business.…”

“…According to North (1987), the new institutional economics theory explains how institutions designate the "rules of the game" in an economy; they reduce uncertainty, dictate incentives, and affect transaction costs among agents. Both formal and informal institutions exert an influence on people's actions and social interactions; but they differ in that informal institutions originate from culture to shape social norms, beliefs, and behavioral codes (Crum, 2011). Because informal institutions are constantly reinforced by a central value system, they are exceptionally stable, and thus, difficult to change (Kwok & Tadesse, 2006).…”

“…Because informal institutions are constantly reinforced by a central value system, they are exceptionally stable, and thus, difficult to change (Kwok & Tadesse, 2006). On the other hand, formal institutions may change more effortlessly and often, since they are derived from constitutions, laws, and regulations (Altin, Memili, & Sönmez, 2017;Crum, 2011). Considering the common value system but varying laws and regulations from state to state in the US, this study focuses on formal institutions and their effect on firm birth and death.…”