The Public Policy Role in the Entrepreneurship and in the Economy

By Tigran Ghalumyan

As long as institutions and policymakers interfere in shaping the business economy, public policy tends to be a significant determinant of economic development. Over the last few decades, all levels of government have been key players in fostering the entrepreneurial economy at the federal, regional, and local levels.


Entrepreneurship is a significant force that powers many nations’ economies, and it is also the guiding force that constantly brings new innovations into companies and the marketplace. Also, entrepreneurs transform innovations into goods and services, gradually creating wealth and reducing unemployment (Schumpeter, 2005). A significant source of funding for entrepreneurship initiatives is public policy.

The research conducted by RAND Corporation analyzes how can we address critical social problems and the role that public policy plays in promoting or impeding innovation through entrepreneurship. In addition, RAND research focuses on the role of the transition and commercialization of technology in innovation and the use of small companies in U.S. government contracting (RAND Corporation. (n.d.)).

The Role of Public Policy

Firstly, we will underline the role of public policy in entrepreneurship. Undoubtedly, Public policy is currently moving from small and medium-sized business policies to entrepreneurship policies that encourage entrepreneurship without relying on quantitative objectives and individual companies or job classes. In turn, the institutional structure developed by public policy affects both the prevalence and success of effective entrepreneurship and so-called high impact entrepreneurship. While the prescription of a general panacea is unlikely due to various circumstances and economic structures, a number of specific policy areas we can define and evaluate. Productive entrepreneurship should be rewarded, regardless of the environment, and unproductive entrepreneurship should be discouraged. Effective companies must also have the opportunity to continue to renew themselves, just as starting and growing a company must be easy (Henrekson M., Stenkula M., 2010).

How does Public Policy make a Difference for Entrepreneurs?

So, tax policy, regulation, start-up costs and access to capital markets, and legal security and property rights are the four public policies that have an effect on entrepreneurship. Policy on Tax is an important thing in order to have a functional government. One fact is clear, a tax on a business activity raises the expense of the activity, thereby discouraging the activity.

For entrepreneurs, the labor market and company regulations may be expensive. The expenses of starting a company are definitely a consideration that one considers before embarking on any business venture. Start-up costs include the number of procedures and days needed for the establishment of a business company, the fees, etc.

In a society lacking respect for individual property rights, no entrepreneur can succeed. Property rights are characterized as the right of a product or service to manage, use, and receive the benefits. Property rights and the legal enforcement of these rights are part of an entrepreneurship-promoting passive policy climate (Garrett, T. A., 2016).


In order to promote entrepreneurship, the government should enact both active and passive policies. Although the most frequently discussed are active policies, such as targeted tax cuts and subsidies, passive policies are critical for creating an entrepreneurial-friendly climate.

To sum up, one argument should be clear: Entrepreneurship would be supported by state institutions that lower the cost of doing business, either by monetary policy, start-up costs, or regulation. More generally, it is important to completely respect private property rights and to provide a well-functioning legal system that respects and preserves these rights. It would promote entrepreneurship and be rewarded with greater economic development by states and countries that respect and implement these institutions.


Schumpeter, Joseph, A. 2005. “Development.” Journal of Economic Literature, 43 (1): 108-120.

RAND Corporation. (n.d.). Entrepreneurship Public Policy. RAND.

Garrett, T. A. (2016, July 14). Entrepreneurs Thrive in America—Federal, State Policies Make a Difference for Those Facing Risk. STL FED.,the%20lens%20of%20economic%20analysis.

Henrekson M., Stenkula M. (2010) Entrepreneurship and Public Policy. In: Acs Z., Audretsch D. (eds) Handbook of Entrepreneurship Research. International Handbook Series on Entrepreneurship, vol 5. Springer, New York, NY.