Fight Poverty with Entrepreneurship

Nov 15, 2012

Photographer: Scott Eells/Bloomberg.

Bono was right when he praised the poverty-fighting power of entrepreneurism for the destitute in developing nations. But entrepreneurship also works for the poor in the United States according to a Goldwater Institute study:

There is a strong connection between a state’s rate of entrepreneurship and declines in poverty. Statistical analysis of all 50 states indicates that states with a larger share of entrepreneurs had bigger declines in poverty. In fact, comparing states during the last economic boom—from 2001 to 2007—data show that for every 1 percentage point increase in the rate of entrepreneurship in a state, there is a 2 percent decline in the poverty rate.

Stephen Slivinski, author of the study, points out that businesses established in inner cities not only provide jobs for the unemployed but “have become a force for stability and pride in these communities.”

Slivinski advises that policymakers encourage entrepreneurship “by lowering tax burdens.” Research finds that “high tax burdens inhibit growth in the number of people in a state who decide to become entrepreneurs." Also, evidence "suggests that states that tax capital gains income at a rate lower than ordinary income encourage growth in entrepreneurship.”

Starting a business is not only one part of the American Dream; it may also be a way to an effective way to reduce poverty.

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