Essays on Entrepreneurship, Business Dynamics and the Macroeconomy

This collection of essays attempts to address the question: what are the main driving forces of the recent changes in entrepreneurship and business dynamics in the US? In the first chapter, I examine changes within businesses in the US by showing that the share of value added by pass-through entities (sole proprietorships, partnerships, LLCs, and S-corporations) almost doubled while that of C-corporations has declined by one-forth. During this period, there have been notable changes in the tax structure and tax avoidance within these entities. I develop a dynamic growth model with endogenous tax avoidance, occupation choice, and uninsurable entrepreneurial risk to study the extent to which changes in taxation can account for the observed reallocation of output. My model results show that changes in tax structure account for 14 percent of the reallocation of output share observed in the US. I also find that the cumulative effect of changes in taxation, borrowing ability, and tax avoidance accounts for about 26 percent of the reallocation of output. In Chapter 2, I examine a different perspective on business dynamics by documenting the decline in business formation and entrepreneurship in the US. In fact, I document that entrepreneurship is more prevalent in married households and amongmen, and that these groups have undergone a greater decline in entrepreneurship since the 1980s. Additionally, I document that changes in the number of married households and the increase in female labor force participation account for over 40 percent of the overall fall in entrepreneurship in this period. To understand the relationship between demographic composition factors and entrepreneurship, I develop a model with an occupation choice for individuals of different marital status, college skills, and gender. The model takes into account important features of the data, including the extent of marital sorting, the skill premium, the gender wage gap, and the gender business income gap. My results indicate that changes in the demographic composition (share of married households, fraction of skilled individuals, marital sorting) account for 76% of the decline in entrepreneurship, 68.4% of the fall in married entrepreneurs, and 70.5% of the decrease in male entrepreneurs. Moreover, considering all changes account for 82.8% of the observed fall in entrepreneurship.