The Key Role of Taxation Policy for Startups
Well-designed taxation schemes are a way to stimulate entrepreneurship, according to 2017 report delivered by the Carlo F. Dondena Centre for Research on Social Dynamics and Public Policy (see below). It was presented at the EU Commission-IMF Fiscal Affairs Department conference on "Taxation, investment and innovation: a triptych for balanced growth" in Brussels. The authors highlighted three main policy options. First, governments may incentivize entrepreneurs to take risks by reducing the asymmetric tax treatment of gains and losses. In the case of startup companies that do not have enough income, the report says, "innovative solutions such as the possibility to match losses with taxes other than income tax, or even to transfer and negotiate tax credits, could be tested."
Second, the costs of entrepreneurial activity may be reduced by allowing the deduction from the corporate tax base of the imputed cost of equity. Third, a reduction in capital gains taxation may help small firms that have limited access to venture capital funds. "A reduction in such costs by targeting specific features of the tax system should be part of a reform strategy. Tax compliance costs for small firms can be reduced also by a system-wide digitization of the tax system," says Alessandra Casarico, Associate Professor of Public Finance and Coordinator of the Welfare State and Taxation Unit of the Dondena Research Centre.
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