Should the Government Make It Safe to Start a Business ? Evidence From a French Reform

How harmful are barriers to entry into entrepreneurship? Using a large scale French reform that aimed to facilitate small business creation for unemployed, we investigate how the pool of entrepreneurs is affected when the cost of entry decreases. We find that new firms started through the reform are on average smaller but not of worse quality than other start-ups, ex post. In particular, they are not more likely to fail or less likely to hire. The reform’s evaluation is consistent with creative destruction effects. By increasing the size of the pool of small start-ups, which eventually grow and hire, the reform creates jobs. At the same time, the analysis reveals large crowding out effects: Employment in incumbent firms decreases by an order of magnitude similar to the number of jobs created in new firms. ∗HEC Paris †MIT-Sloan, NBER and CEPR ‡Princeton University and NBER §HEC Paris and CEPR