The Effects and Implications of Taxation on Entrepreneurship and Innovation
CHAPTER ONE
OBJECTIVES OF THE STUDY
The broad objective of the study is to examine the implications of taxation on the performance of Entrepreneurship in Lagos State.
The specific objectives include:
- To ascertain whether there is a significant correlation between taxation and the profitability of Entrepreneurship.
- To determine if there is a relationship between taxation and the reinvestment rate of Entrepreneurs.
- To ascertain whether there is a relationship between taxation and the growth of Entrepreneurship.
- To determine if there is a relationship between taxation and the productivity of Entrepreneurship
CHAPTER TWO
Rationale for public funding of basic research
The case for the public funding of basic research is well established in the literature, at least since the seminal paper of Nelson (1959). He identifies fundamental conflicts between providing basic research and the interests of profit-making firms in a competitive economy. First, the provision of basic research has significant positive external effects that cannot be internalized by private firms. Basic research should not be directed toward particular technologies, and the resulting scientific knowledge typically has practical value in many fields. As a consequence, technological specialization and a lack of patentability frequently prevent private firms from exploiting all the potential benefits from undirected basic research. Additionally, Nelson argues that due to its non-rivalry, full and free dissemination of scientific knowledge would be socially desirable. Second, Nelson argues that the long lag between basic research and its reflection in marketable products may prevent short-sighted firms from investing. Thirdly, he points out that the high uncertainty involved in the process may induce private provision of basic research below the socially optimal level. The more basic the research is the more severe these three problems become, so they represent a special motivation for the public provision of basic research. The case for publicly funded basic research has further been substantiated by several other authors. In terms of market failure, Arrow (1962), for example, points out that invention, which he defines as the production of knowledge, is prone to three classical pitfalls: indivisibility, inappropriability, and uncertainty. Much like Nelson (1959), he argues that these problems result in underinvestment in research on the free market and that this problem is the more severe, the more basic the research is. Kay and Smith (1985) stress the enormous benefits from basic research and argue that public provision is necessary due to the public-good nature of basic research. They also out a case for the domestic provision of basic research rather than free-riding on basic research performed by other countries. In summary, there is a strong case for publicly funded research, in particular basic research. This rationale is borne out by the empirical evidence. Gersbach et al. (2013) report data showing that for a selection of 15 countries the average share of basic research performed in the government and higher-education sector was approximately 75% in 2009. The OECD research and development statistics tell us that across OECD member countries around 80% of total research performed in the government or higher education sector is also funded by the government
Effects of basic research and financing
Our main question is how optimally chosen basic research expenditures should be financed. Our paper is thus related to the literature on financing productive government expenditures. In his seminal paper, Barro (1990) examines the case of productive government expenditures as a flow variable. Futagami et al. (1993) develop the case of productive government expenditures representing investments in a stock. These authors generate investment-based endogenous growth models where the individual firm faces constant returns to scale with respect to both private capital and the public services provided by the government. According to the comprehensive survey by Irmen and Kuehnel (2009), this applies more generally to the main body of the literature on productive government expenditures and economic growth. By contrast, our model is rooted in the tradition of R&D-based endogenous growth models, notably those that explicitly take into account the hierarchical order of basic and applied research (see, for example, Arnold, 1997; Morales, 2004; Gersbach et al., 2010). In these models, basic research has no productive use in itself but rather fuels into the productivity of the applied research sector, where knowledge is transformed into blueprints for new or improved products. In our case, basic research affects the innovation probability of entrepreneurs engaging in applied research. Using more public funds for basic research improves the chances of success for private entrepreneurs at the cost of diverting resources away from intermediate- and final-good production. This implies that financing basic research has to fulfill a second important role. Suppose basic research is financed via a combination of labor income, profit, and lump-sum taxes. The relative size of labor to profit taxes affects the trade-off faced by potential entrepreneurs between being employed in the labor market and becoming an entrepreneur. Hence it influences the number of innovating entrepreneurs in our economy. To sum up, a socially efficient financing scheme for basic research must simultaneously provide the funds for these investments and must induce a socially desirable share of agents to become entrepreneurs.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the effects and implications of taxation on entrepreneurship and innovation. Selected SMEs in Lagos state form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is important to ascertain that the objective of this study was to ascertain the effects and implications of taxation on entrepreneurship and innovation. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the chellenges of the effects and implications of taxation on entrepreneurship and innovation
Summary
This study was on the effects and implications of taxation on entrepreneurship and innovation. Five objectives were raised which included: To ascertain whether there is a significant correlation between taxation and the profitability of Entrepreneurship, to determine if there is a relationship between taxation and the reinvestment rate of Entrepreneurs, to ascertain whether there is a relationship between taxation and the growth of Entrepreneurship and to determine if there is a relationship between taxation and the productivity of Entrepreneurship. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected SMEs in Lagos state. Hypothesis was tested using Chi-Square statistical tool (SPSS)
Conclusion
In conclusion, taxation can have both positive and negative effects on entrepreneurship and innovation. On the positive side, taxes can provide a stable source of revenue for governments to provide essential services and infrastructure, which can create an environment that is conducive to entrepreneurship and innovation. Additionally, taxes can serve as a means of redistribution and reduce income inequality, which can increase opportunities for entrepreneurship and innovation.
However, on the negative side, high tax rates and complex tax systems can create barriers to entrepreneurship and innovation, especially for small businesses and startups. Additionally, tax policies that are not tailored to the needs of entrepreneurs and innovators can lead to unintended consequences, such as discouraging investment and innovation.
Overall, it is important for tax policies to strike a balance between revenue generation and supporting entrepreneurship and innovation. This can be achieved through the implementation of tax policies that are simple, predictable, and tailored to the needs of entrepreneurs and innovators, as well as the provision of incentives and support for startups and small businesses.
RECOMMENDATION
Simplify tax regulations: Complex tax regulations can be a significant barrier to entrepreneurship and innovation. To promote entrepreneurship and innovation, policymakers should simplify tax regulations and make it easier for startups and small businesses to understand and comply with tax requirements.
Provide tax incentives: Tax incentives such as tax credits or tax holidays can provide a significant boost to startups and small businesses. Policymakers should consider providing targeted tax incentives to encourage entrepreneurship and innovation in areas where it is needed most.
Balance revenue generation with supporting entrepreneurship and innovation: Policymakers should balance the need for revenue generation with the goal of supporting entrepreneurship and innovation. While taxes are necessary for governments to provide essential services and infrastructure, it is also important to ensure that tax policies do not create barriers to entrepreneurship and innovation.
Engage entrepreneurs and innovators in tax policy development: Policymakers should engage entrepreneurs and innovators in the development of tax policies to ensure that these policies are tailored to their needs. This can help to ensure that tax policies support, rather than hinder, entrepreneurship and innovation.
Encourage investment in entrepreneurship and innovation: Policymakers can encourage investment in entrepreneurship and innovation by providing tax incentives for angel investors and venture capitalists. This can help to provide much-needed funding for startups and small businesses, and drive innovation and economic growth.
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