If the Rules are Simple, You Don't Need to Cheat: An Analysis of the Impact of Corruption and Regulation on Entrepreneurial Entry

Abstract

Abstract This paper investigates the effect of corruption and regulation on entrepreneurial entry through an empirical study and an accompanying theoretical model. The empirical study utilizes a 49-country dataset from multiple data sources from 2006-2015 to argue that corruption can positively affect entrepreneurial entry in environments with inefficient taxes. I then develop a model to explain this result, where a wealth maximizing agent decides to join the workforce or to embark on an entrepreneurial endeavor. In the decision-making process, the agent considers the environment’s level of corruption and regulation. These results support previous findings by Dreher and Gassebner (2011) and Belitski et al (2016). The paper advances theoretical framework for entrepreneurial decision making by incorporating the economy’s levels of corruption, regulation, and development into the model.