It is a common belief among entrepreneurs and policymakers that small businesses are the fountainhead of job creation and the engine of economic growth. However, it has become increasingly apparent that the conventional wisdom obscures many important issues. It is an important consideration because many government spending programs, tax incentives, and regulatory policies that favor the small business sector are justified by the role of small businesses in creating jobs and is the raison d’etre of an entire government agency: the Small Business Administration (SBA). This paper concludes that there is no reason to base our policies on the idea that small businesses are more deserving of government favor than big companies. And absent other inefficiencies that would hinder small businesses performances, there is no legitimate argument for their preferential treatment. Hence the paper suggests ending all small businesses’ subsidies.
Veronique de Rugy is a research fellow at AEI.