Papers by Magnus Henrekson
Publisher Summary Government growth in Sweden during the postwar period has been by far the most ... more Publisher Summary Government growth in Sweden during the postwar period has been by far the most rapid in the industrialized world. This is true for exhaustive expenditures whereas transfers have increased equally fast in a few other countries, notably Denmark and the Netherlands. This chapter explains the rapid expansion of government expenditure in Sweden since 1950. It describes the empirical picture. The main observation is that although the growth rate of total government expenditures has been fairly constant for most of the studied period, the growth pattern of the underlying expenditure components are widely dissimilar. This fact points to the need for separate explanations of expenditures for consumption, transfers, and investment. The chapter presents an empirically testable model of the growth of government that has been developed where the parameter estimates can be interpreted as elasticities. The model consists of both a demand and a supply side. To integrate demand and supply in a coherent framework, a disequilibrium setting is chosen. One salient characteristic of public output is that it is not sold on a market where prices adjust to equate supply and demand. Rather, the observed quantities are likely to be either on the demand or the supply curve. Econometrically, this problem is solved by applying a disequilibrium Maximum-likelihood method developed by Maddala and Nelson. The chapter describes this method. The identification of potential explanatory variables acting on the demand or the supply side, respectively, is done through an extensive reading of the government growth literature. The chapter discusses the way by which the variables are chosen and whether they should be applied to the demand or the supply side. It presents the estimation results for each component of government expenditures and the comparison of the different results, and highlights the main points. It also presents a summary of the study and some tentative conclusions.
The European Union and the Return of the Nation State
The European Union officially proclaims to have a common asylum policy. However, the common treat... more The European Union officially proclaims to have a common asylum policy. However, the common treaties leave a great deal of discretion to the individual member countries, which allow them to regulate refugee migration while still upholding international treaties. Member countries have authority over border controls, the processing of asylum applications as well as economic benefits provided to refugees. We show that the differences in refugee flows are so extensive and systematic that the existence of a common EU asylum policy is debatable. The commitments made by the member countries are largely voluntary, and asylum policy is mainly determined at the national level. The discrepancies between the member countries strongly signal that the European Union may not be an optimal region for a common asylum policy. An asylum policy should instead be determined at the national level concordant with the regional and local level, where integration measures are implemented in practice. Meanwhile, the European Union can play an important role through refugee aid to afflicted countries, treaties with third countries, rescue actions in the Mediterranean and control of the external EU borders.
Journal of Institutional Economics
We present the theory of the collaborative innovation bloc (CIB), an evolving system of innovatio... more We present the theory of the collaborative innovation bloc (CIB), an evolving system of innovation within which activity takes place over time. We show how the application of the CIB perspective can help make institutional and evolutionary economics more concrete, relevant, and persuasive, especially regarding policy prescriptions. Such policy actions should strive to improve the antifragility of CIBs and the economic system as a whole, thus enabling individual CIBs and the broader economic system to thrive when faced with adversity. With this in mind, we develop heuristics to evaluate CIB antifragility before using Sweden's economic and institutional evolution since the 1970s as a backdrop for identifying a set of institutional areas where reform can be undertaken to move in this direction.
Scandinavian Economic History Review
Beginning in the interwar period, industrial foundations became a vehicle for corporate control o... more Beginning in the interwar period, industrial foundations became a vehicle for corporate control of large listed firms in Sweden. In the 1990s they were replaced by wealthy individuals who either directly own controlling blocks or who own them through holding companies. We study potential explanations for this change and propose two tax-related candidates: shifts in the relative effective taxation across owner types and the dismantling of inheritance taxation that prevented the generational transfer of the ownership of large controlling blocks. We exploit newly computed marginal effective capital income tax rates across capital owners, accounting for all relevant factors, including rules governing tax exemptions. We show that the 1990-91 tax reform, abolition of the wealth tax for controlling owners in 1997, 2003 tax exemption of dividends and capital gains on listed stock for holding companies with a voting or equity share of at least 10 percent, and abolition of the inheritance and gift taxes in 2004 reversed the rules of the game. Recently, control has largely been wielded through direct ownership, and the role of foundations is rapidly declining. These findings point to the importance of tax incentives for the use of foundations as the control vehicle of listed firms.
The Entrepreneurial Society
Small Business Economics
Policymakers in several countries have recently taken steps to promote the rapid export expansion... more Policymakers in several countries have recently taken steps to promote the rapid export expansion of small-and medium-sized enterprises (SMEs). The goal of these policies has been to create successful export-intensive startups, which are often referred to as born globals. These measures are motivated by studies claiming that born global firms are disproportionately important for job creation and economic growth. Using detailed register data on the universe of Swedish manufacturing startups founded 1998-2014, we find that born globals are a very small group of firms whose long-run size and growth do not outperform other exporting firms. We also show that removing continuing firms and spinouts from the analysis is crucial for obtaining correct results. Thus, the notion that born globals are superior to firms that follow a more gradual internationalization process, a conclusion largely based on case studies and surveys, does not withstand scrutiny. Policymakers must therefore be aware that encouraging more born globals need not necessarily lead to large benefits for the overall economy, especially in terms of employment.
Venture Capital
The VC sector is interesting both in its own right and as a proxy for entrepreneurial finance mor... more The VC sector is interesting both in its own right and as a proxy for entrepreneurial finance more broadly. We highlight the tax treatment of stock options as an important factor for variations in the size of the VC sector. VC often relies on option-based contracts to mitigate incentive problems. Granting stock options to founders and key employees also allows credit-constrained start-ups to attract and retain top talent. Such compensation cannot be unambiguously classified as either capital or labor income. Some tax systems treat stock options in VC-funded firms as highly taxed employee compensation, whereas others treat them as capital gains with low flat tax rates. The effective rate depends on tax practices and is not readily indicated by statutory taxes. The tax consultancy firm PwC calculated the effective tax rate for a standardized entrepreneurial case in 22 countries, which is supplemented with our own calculations for 16 additional countries. For this sample, we find a negative crosscountry relationship between the effective tax rate on employee stock options and the extent of VC activity. The negative effect is stronger for countries with high R&D investments and weaker in countries with low R&D spending.
Small Business Economics
In this paper, we introduce the special issue on Financial and Institutional Reforms for an Entre... more In this paper, we introduce the special issue on Financial and Institutional Reforms for an Entrepreneurial Society in Europe. There are many reasons for Europe to want to make the transition to a more Entrepreneurial Society. And for decades now, policy makers are trying to bring that transition about with variations on the Beducate, deregulate and financeâ pproach to entrepreneurship. We argue that more fundamental reforms are required to improve the entrepreneurial ecosystem and bring about this transition. We then discuss the 12 contributions that pertain to five different facets of the entrepreneurial ecosystem. The first two papers address the most fundamental institutional foundations of the ecosystem. The next three papers discuss the (lack of) access to knowledge and incentives to start innovative entrepreneurial ventures. That is followed by three papers that focus on the institutions that (fail to) channel financial resources to such ventures and two papers that analyze the relevance of labor market institutions. The special issue concludes with two papers investigating how the interplay of institutions and productive entrepreneurship results in economic growth.
Small Business Economics
Europe continues to lag behind the USA in venture capital (VC) activity and in the creation of su... more Europe continues to lag behind the USA in venture capital (VC) activity and in the creation of successful startups, and has recently been surpassed by China. This is despite the fact that many European countries have deep financial markets, strong legal institutions, and high R&D spending. We point to the tax treatment of employee stock options as an explanation for the stronger growth of the US VC sector. As a response to high uncertainty and transaction costs, VC financiers have developed a model in which founders and key recruitments are compensated with stock options under complex contracts. Low tax rates on employee stock options further raise the relative returns of working and investing in innovative entrepreneurial firms, and shift financial capital and talent to that sector. We measure the effective tax on stock options in VCbacked entrepreneurial firms in a number of developed economies. Countries with lower stock option taxation have higher VC activity and more high-growth expectation entrepreneurial activity. Based on these associations and the theoretical and empirical literature, we argue that more lenient taxation of gains on employee stock options can be a strategy for European countries to catch up in entrepreneurial finance. This tax policy would narrowly target entrepreneurial startups without requiring broad tax cuts. The favorable tax treatment of stock options allows the state to promote firms that rely on entrepreneurial finance and make use of these types of contracts without lowering taxes for other sectors of the economy.
Scottish Journal of Political Economy
We study to what degree authors who publish in the five most prestigious journals in economics ha... more We study to what degree authors who publish in the five most prestigious journals in economics have previously published there and in which world region they are based. Although still high, the concentration of U.S.-based and previously published top-five authors has decreased. This trend is driven by increased co-authorship between U.S. and non-U.S. scholars and between scholars with and without previous top-five articles. Only around 5 percent of all articles each year are written solely by first-time authors from outside the U.S., and this share has not increased since the mid-1990s. Against this background, we argue that European institutions should be wary of putting too much emphasis on publishing in these five journals. Both the advancement and diversity of the economics discipline may otherwise suffer.
Institutional Reform for Innovation and Entrepreneurship
This chapter provides a theoretical foundation to help identify the areas where the need for refo... more This chapter provides a theoretical foundation to help identify the areas where the need for reform is the greatest. The theories of the experimentally organized economy and of entrepreneurial ecosystems are used to identify six competencies, in addition to that of the entrepreneur, that are necessary for ideas to be generated, identified, selected and commercialized. The competencies are those of inventors, professional managers, competent employees, venture capitalists, actors in secondary markets, and demanding customers. Importantly, no one is in charge of the ecosystem's skill structure, which limits what can be achieved through top-down reform. We also draw on the varieties of capitalism literature, which identifies institutional complementarities as an important driver of the persistent institutional differences across polities. The existence of institutional complementarities implies that viable policy changes must be compatible with existing institutional patterns and that a specific change will have effects that extend throughout the institutional system. As such, they help explain both grid-locks and cascading changes. Keywords Coordinated market economy Á Entrepreneurial ecosystem Á Experimentally organized economy Á Institutional complementarity Á Liberal market economy Á Skill structure Á Varieties of capitalism Since Joseph Schumpeter's (1934) seminal work, the view that an economy's long-term growth depends on its ability to exploit innovations has become commonplace (Cohen 2010). Creating these innovations is typically seen as the role of the entrepreneur, whom Schumpeter came to view as the primus motor of economic growth. However, entrepreneurs do not operate alone or in a vacuum; they depend on a broader entrepreneurial ecosystem: a skill structure consisting of an array of actors with complementary skills and resources to realize their ideas (Johansson 2009). Furthermore, all actors in the ecosystem's skill structure are constrained and enabled by their institutional environment (Aldrich 2011; Estrin et al. 2013). In this chapter, we present our definition of entrepreneurship and consider how it differs across Europe. We then present the skill structure's other actors, who are necessary to reap the full benefits of innovations and their subsequent commercialization. Lastly, we will discuss the VoC perspective and what it entails for the remainder of our analysis.
Telecommunications Policy, 2016
We analyze the effect of ICT and R&D on total factor productivity (TFP) growth across different i... more We analyze the effect of ICT and R&D on total factor productivity (TFP) growth across different industries in Sweden. R&D alone is significantly associated with contemporaneous TFP growth, thus exhibiting spillover effects. Although there is no significant short-run association between ICT and TFP, we find a positive association with a lag of seven to eight years. Thus, spillovers from R&D affect TFP much faster than spillovers from ICTinvestments. We also divide ICT capital into hardware and software capital. To our knowledge, this distinction has not been made in any previous study analyzing TFP at the industry level. The results show that lagged hardware capital services growth is significantly associated with TFP growth. Hence, investments complementary to hardware are needed to reap the long-run TFP effects from reorganizing production.
Working Paper Series, 2007
Under de senaste åren har ett stort antal svenska företag övergått i utländsk ägo eller fusionera... more Under de senaste åren har ett stort antal svenska företag övergått i utländsk ägo eller fusionerats med utländska företag. Samtidigt har den utländska ägarandelen på börsen ökat snabbt. Är detta endast en naturlig del av den pågående internationaliseringen eller förstärks utvecklingen av den politik som förts gentemot företagssektorn i Sverige? Här hävdar Magnus Henrekson och Ulf Jakobsson att den ekonomiska politiken i Sverige under efterkrigstiden-där enskild förmögenhetsuppbyggnad motverkats och institutionellt ägande och lånefinansiering uppmuntrats-fått till följd att det utländska övertagandet av svenskt näringsliv påskyndats. De betonar att den del av politiken som syftat till att skapa "kapitalism utan kapitalister" så att säga "paketerat" de svenska storföretagen för ett utländskt övertagande. Deras analys talar för att vi står inför en utveckling där en mycket stor del av de stora svenska företagen inom några få år kommer att vara i utländsk ägo. Slutligen hävdar författarna att det enda sättet att bromsa denna utveckling är att avveckla alla de skatteregler som gynnar utländskt ägande i förhållande till svenskt.
Small Business Economics, 2016
We argue that evasive entrepreneurship is an important, although underrated, source of innovation... more We argue that evasive entrepreneurship is an important, although underrated, source of innovation, and provide the first systematic discussion of the concept. We define evasive entrepreneurship as profit-driven business activity in the market aimed at circumventing the existing institutional framework by using innovations to exploit contradictions in that framework. We formulate four propositions of evasive entrepreneurship and illustrate them with a number of real life examples, ranging from a secret agreement among Chinese farmers in the 1970s to activities of rides-for-hire startups in the modern sharing economy. We demonstrate that while evasive entrepreneurship can either be productive, unproductive or destructive, it may prevent economic development from being stifled by existing institutions during times of rapid economic change. Furthermore, it can spur institutional change with important welfare effects.
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Papers by Magnus Henrekson