Increasing Entrepreneurship is a Key to Lowering Poverty Rates

Posted on November 14, 2012 | Type: Press Release
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Contact: Rob Kramer, (602) 633-8961

Just in time for Global Entrepreneurship Week, a new report shows that states with a larger share of entrepreneurs do a better job at reducing poverty than states with fewer entrepreneurs.

A new study released by the Goldwater Institute, Increasing Entrepreneurship is a Key to Lowering Poverty Rates, explores the relationship between entrepreneurs and statewide poverty. Goldwater Institute Senior Economist Stephen Slivinski finds that for every one-percentage point increase in the average rate of state entrepreneurship there is a two percent drop in the average state’s poverty rate. A drop of this magnitude means thousands of families are lifted out of poverty.

“Thousands of Americans are waiting to live their dream, create their own livelihoods, and build their community through entrepreneurial pursuits,” says Slivinski. “Unfortunately, many can’t do that when they face onerous government barriers to entry.”

How can a state expand the opportunity for entrepreneurs to start working? Slivinski gives policymakers two simple guidelines to promote entrepreneurial activity in their state; lower taxes and reduce regulatory barriers.

Slivinski’s analysis of federal data found that lower taxes often correlate to higher rates of entrepreneurship. As Slivinski points out, in states with no state income tax, entrepreneurs make up roughly 21.7% of the workforce. In states with a state income tax, however, that rate drops to 19.6%.

Slivinski says a few small points make a big difference in a state’s economy. “If policymakers eliminated the state income tax and Arizona’s rate of entrepreneurship increased from where it is today, at 16%, to the national average for states with no income tax, that would mean more than 100,000 people would be starting businesses. Just imagine what that would do for our economy. Fostering entrepreneurship is the best jobs program the state could ever pursue.”

On top of taxes, regulatory barriers also stop low-income people from becoming entrepreneurs. Licensing laws, high permitting fees, and other government requirements have been shown to limit the number of entrepreneurs who can afford to start their businesses and hire employees.

During America’s last economic boom from 2001 to 2007, Arizona’s poverty rate dropped roughly 2%, while some states enjoyed declines greater than 30%. Even though all states are subject to the same policies under the federal government, they can still focus on shaping their own policies at home to foster growth and combat poverty.

“Differences in how well states do at reducing poverty are not random; each state pursues different policies and some are proven to work better than others,” Slivinski concludes. “Arizona policymakers should approach fostering entrepreneurship as an anti-poverty program. Arizona can continue to pursue specific industries and the jobs associated with them, but growing our own crop of tens of thousands of new business owners should be at the top of the priority list. Arizona should strive to become known nationwide as the ‘Entrepreneurship State’.”

To read the report, please visit: http://goldwaterinstitute.org/article/increasing-entrepreneurship-key-lowering-poverty-rates

To read Stephen Slivinski’s biography, please visit: http://goldwaterinstitute.org/stephen-slivinski-bio

To interview Stephen Slivinski, please call Communications Associate Rob Kramer at (602) 633-8961.

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