Cross-country studies have shown that higher costs to starting a business tend to reduce entrepreneurship (Chambers and Munemo, 2019) and that an unfavorable environment for business can increase poverty and income inequality (Chambers et al., 2019a; Djankov et al., 2018). Building on the current literature, the authors test whether barriers to starting a business at the state and city level in the USA are associated with changes in entrepreneurship and income inequality.
Measures of entrepreneurship (establishment entry rate and exit rate) are regressed on measures of barriers to entry in a cross-section of 50 states as well as a cross-section of 73 cities in the USA. Further, the authors regress measures of income inequality on measures of barriers to entry using the same two cross-sections. State level data on barriers to entry are from Teague (2016), published in the Journal of Entrepreneurship and Public Policy. City level data on barriers to starting a business are from the Doing Business in North America (DBNA) dataset.
Results show that there is a negative and significant association between barriers to starting a business and the rate of firm exit. A standard deviation increase in barriers to entry is associated with a five percent decrease in the firm exit rate at the state level. The authors find only limited evidence that barriers to entry are associated with income inequality.
Despite a large volume of scholarship on how regulation and barriers to entry influence entrepreneurship, no study (to the authors’ knowledge) has investigated how general entry regulation affects the entry or exit rate of establishments at the state or municipal level in the USA.
Special thanks to Ryan H. Murphy, Dustin Chambers and Dean Stansel for their detailed feedback. Thanks to the Menard Family Institute for Economic Inquiry at Creighton University for the summer grant that supported this research. Finally, thanks to all those who commented on this project at the Institute for Humane Studies Colloquium on The Impact of Regulation on Business and Society.
Funding: The Menard Family Institute for Economic Inquiry at Creighton University supported this project through a summer research grant.
O'Reilly, C. (2022), "Barriers to entry, entrepreneurship and income inequality within the USA", Journal of Entrepreneurship and Public Policy, Vol. 11 No. 4, pp. 332-356. https://doi.org/10.1108/JEPP-06-2022-0069
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