Side benefits of promoting entrepreneurship

Are there societal side benefits to encouraging entrepreneurship? This study answers this question by looking at the effects of a policy promoting new firm creation on crime levels within municipalities. Between 2005 and 2009, the Portuguese government gradually introduced a deregulation reform (“Empresa na Hora”) in 144 out of 308 municipalities. In the municipalities targeted by this reform, the costs of establishing a firm declined drastically: it took just one hour and about 300 euros to become an “entrepreneur”.

This paper focuses in particular on the impact that this reform had on crime levels within municipalities. Based on data from “Quadros de Pessoal” database, the paper finds a reduction of about 4% in total crime in the municipalities targeted by this reform. The decline in total crime is immediate and becomes more pronounced over time (see Figure), but the size and duration of this effect varies for different types of crime. Economic and property crime declines immediately after the reform, but this effect is temporary. Violent crime, in turn, drops only a couple of years after the reform, but its effect is larger and more persistent.

This study also shows evidence of the mechanism explaining these results. Namely, it shows that promoting entrepreneurship via this reform increases employment for young men (up to 25 years old) who did not finish high school. Thus, the evidence indicates that after the policy implementation, these individuals were more likely to create their own firm, or to find jobs elsewhere, both in start-ups and in established firms (the latter seem to respond to the increase in competition by hiring more generic human capital). This evidence is suggestive that after the policy reform these individuals are better able to integrate in the active labor force, moving them away from unemployment where a greater vulnerability to crime may exist.

Click here to go to the paper by Olenka Kacperczyk and Vera Rocha.