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Research at St Andrews

Capital gains tax, venture capital and innovation in start-ups

Research output: Working paper



Lora Dimitrova, Sapnoti Eswar

School/Research organisations


We examine the effect of staggered changes in state-level capital gains tax rates on Venture Capital (VC)-backed start-ups and show that an increase in tax rates reduces patent quantity and quality. The results are consistent with a reduction in VC effort: VC-level tax increases lead to incrementally lower patent production by start-ups located out-of-state, and not linked by a direct flight to the VC investor. We also find evidence of a change in entrepreneurs' incentives: after a tax increase entrepreneurs decrease innovation risk, and stay invested for longer (the lock-in effect).


Original languageEnglish
Publication statusPublished - 2021

    Research areas

  • Real innovation, Capital gains tax, Entrepreneurship, Venture capital

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