Does More Entrepreneurship Benefit Society? The Effect on Community Crime Using a Quasi-Natural Experiment

Abstract

Previous research has focused on the economic effects of entrepreneurship, but little is known about how promoting entrepreneurship affects societies. Focusing on community crime as a key societal outcome, we posit that initiatives fostering new venture creation through lower barriers to entrepreneurship will reduce crime. The proposed mechanism responsible for this effect is the enhanced socio-economic integration of disadvantaged groups within the community. This mechanism is enabled through multiple channels: lowering the barriers to entrepreneurship improves labor market opportunities for disadvantaged groups as founders of their own firms and joiners of new startups, or, more indirectly, as new hires at incumbent firms. Leveraging employer-employee matched data from Portugal between 2002 and 2010 and an exogenous deregulation reform that significantly increased entrepreneurial activity, we find strong support for our theory. Reducing barriers to entrepreneurship reduces within-community crime, and this result is further amplified in communities with higher socio-economic exclusion figures. We find significant reductions in different types of crime, although the magnitude, timing, and persistence of the effects varies, which gives important insights into the different integration mechanisms at play.