Entrepreneurship Incentives for Resource-Constrained Firms

Government should not always try to encourage innovation and entrepreneurship by offering incentives. But when it does, it should consider the fact that these incentives are often less attractive to resource-constrained firms, like startups. Policy that seeks to incentivize entrepreneurship or innovation should account for the diversity of firms that might take advantage of legal incentives. It should not assume that firms are profitable. Rather, entrepreneurial incentives should accommodate the important case of resource-constrained, loss-making firms, for instance through ex ante mechanisms like refundable tax credits or full loss offsets, or by allowing firms to monetize benefits by transferring them to investors.