SMALL BUSINESS, INNOVATION, AND TAX POLICY: A REVIEW

Small businesses occupy a significant role in policy debates. This paper reviews evidence relating to tax policy, small businesses, innovation, and entrepreneurship. We provide background information on the small business sector and alternative business definitions. We examine evidence suggesting that job growth and innovation tends to occur in young firms, which typically start off small, rather than in small firms per se. We review how a wide variety of tax policies influence entrepreneurial activity. The key issue for policy makers going forward appears to be targeting incentives on young firms as opposed to small firms.