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.
Among the findings:
- 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.
