NEWSRELEASE

For Release: July 26, 2005
Contact: John McDowell, (202) 205-6941
john.mcdowell@sba.gov
SBA Number: 05-36 ADVO
Press Kit

State Policies Directly Affect Entrepreneurial Growth

Bankruptcy Exemptions, Taxes, Unemployment Programs, And Access To
Health Insurance All Affect Entrepreneurship

WASHINGTON, D.C. - The actions of state policy makers directly affect business starts and closures, according to a study released today by the Office of Advocacy of the U.S. Small Business Administration (SBA). Using sophisticated spatial modeling (geographic analysis) the report finds that entrepreneurs make decisions about starting and closing businesses based not only on conditions in their current location, but on conditions in neighboring states. The result is that states with conditions more favorable to small business see an increase in entrepreneurial activity.

“This report should be helpful for state policy makers,” said Thomas M. Sullivan, Chief Counsel for Advocacy. “Their actions have consequences, not only for entrepreneurs in their states, but in the states surrounding them. Make it difficult for entrepreneurs to flourish and you’ll find that their ideas, their creativity, their job creation, and their economic growth will simply go elsewhere.”

While focusing on state bankruptcy exemptions (the items entrepreneurs can shield from creditors during bankruptcy proceedings) and their effect on business formation and dissolution, the report also examined other factors affecting entrepreneurial growth.

Among the statistically significant findings of A Spatial Model of the Impact of State Bankruptcy Exemptions on Entrepreneurship, written by Dr. Aparna Mathur with funding from the Office of Advocacy, are:

· Higher bankruptcy exemptions in neighboring states lower the probability of starting a business in the state of residence.

· Lower taxes in neighboring states increase the probability of business closures in adjoining higher tax states.

· Businesses in states with Self-Employment Assistance programs, which encourage transition to entrepreneurship for the unemployed, are less likely to shut down. These programs exist in seven states.

· Individuals with access to employer provided health insurance are less likely to leave their jobs to start a business.

The Office of Advocacy, the “small business watchdog” of the government, examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress, and the President. It is the source for small business statistics presented in user-friendly formats and it funds research into small business issues.

For more information, visit the Office of Advocacy website at www.sba.gov/advo.

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The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. The presidentially appointed Chief Counsel for Advocacy advances the views, concerns, interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers. For more information, visit www.sba.gov/advo, or call (202) 205-6533.