The Impact of Different Types of Regulations on Entrepreneurial Activity and Owner Composition

Our objective in this study is to determine how different regulations affect the entrepreneurial activity in U.S. states. We also examine whether firm/owner characteristics are different in the states with more favorable regulations versus the other states. We use the “United States Small Business Friendliness Survey” done by Kauffman Foundation and Thumptack.com in 2013. This survey asks small business owners their opinions on six different types of regulations including “employment, labor and hiring regulations”, “tax code and tax-related regulations”, “licensing forms, requirements and fees regulations”, “zoning regulations”, “health and safety regulations”, and “environmental regulations”. We ran several nonparametric tests to see if there has been more entrepreneurial activity in states with a high score in each regulation category compared to the states with a low score. Our results show that “employment, labor and hiring regulations” has a significant impact on the entrepreneurial activity in a state. “Tax code and tax-related regulations” is also marginally significant. These findings indicate that states and cities that want to improve their environment for small businesses should specifically focus on improving their “employment, labor and hiring regulations” and “tax code and tax-related regulations”