Abstract
This paper analyzes the impact of political discretionality and corruption on firm creation rates, distinguishing between formal and informal entrepreneurship. The results show that political discretionality discourages the creation of both formal and informal enterprises, as the fewer restrictions to the discretional and opportunistic behavior of the government increases uncertainty and risks for all types of entrepreneurial activities. Corruption also has a negative influence on formal entrepreneurship, as it increases the costs of the procedures required to create and manage the company without providing assurance that the other party will fulfill the agreement. However its impact on informal entrepreneurship is positive because this type of companies represents an alternative way to enable entrepreneurs to start their activity avoiding some of the requirements to which formal firms are subject to.
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