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The Importance of Government Policy to Entrepreneurs

ArticleID 121  
Writer Isaac Thuku
Category Personal Article



Entrepreneurial activity leads to economic growth and helps to reduce poverty, create a middle class, and foster stability and it is in the interests of government to create and maintain the best working environment for entrepreneurs.


Government policies can be categorized as “active” or “passive” depending on whether they involve the government in determining which types of businesses are promoted. Active policies, such as targeted tax breaks, help specific forms of businesses, while passive policies help create an environment that is friendly to entrepreneurs without regard to specific firms.


Both active and passive policies are effective in promoting small business, but passive policies promote entrepreneur¬ship most significantly. It is this friendly environment that will allow any business—regardless of size, location or mission—to expand and to thrive.


Among the most successful strategies for encouraging entrepreneurship and small business;

• Tax policy

Governments use taxes to raise money. But taxes increase the cost of the activity taxed, making it a delicate method. Therefore, policymakers need to balance the goals of raising revenue and promoting entrepreneurship. Corporate tax rate reductions, tax credits for investment or education, and tax deductions for businesses are all proven methods for encouraging business growth.

• Regulatory Policy

The simpler and more utilized the regulatory process, the greater the likelihood of small business expansion. Reducing the cost of compliance with government regulations is also helpful. Governments can, for example, provide complete service centers where entrepreneurs can find assistance and allow electronic filing and storage of forms.

• Access to Capital

Starting a business takes money. There are mandatory procedures and fees as well as the initial costs of the new enterprise itself. Therefore, the most important activity a government can undertake is to assist would be entrepreneurs with finding money for start-ups.

• Legal Protection of Property Rights

Small business can thrive where there is respect for individual property rights and a legal system to protect those rights. Without property rights, there is little incentive to create or invest. For entrepreneurship to flourish, the law needs to protect intellectual property. If innovations are never protected, some people would lose important secrets to their ventures and his would truly deter likely entrepreneurs.

• Creating a Business Culture

Governments can also show that acknowledge private enterprise by making it easier for individuals to learn business skills and by rewarding entrepreneurs and small business owners. Policy makers can:


Offer financial incentives for the creation of business incubators. These usually provide new businesses with an inexpensive space in which to get started and services – such as a copier and a fax machine.


The importance of Government policy to entrepreneurs
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