Governments try to promote entrepreneurship in numerous ways. These include: improving access to start-up finance; providing grants and subsidies for innovation; structuring the tax system to help entrepreneurs; and offering entrepreneurs subsidised assistance and advice. In addition, regulation can affect the performance of entrepreneurial ventures and hence the attractiveness of entrepreneurship. This chapter and the next one outline theory and evidence relating to government intervention in these areas.

The present chapter focuses on public policies designed to enhance access to finance for entrepreneurs and to promote innovation. Several programmes belong to this policy set. The first section introduces one of the best-known and longest-established finance policies, loan guarantee schemes (LGSs). I present some stylised facts, theoretical insights and empirical evaluations of LGSs. The second section considers other types of credit policies including direct government interest subsidies, loans and grants. The third section deals with policies designed to increase the provision of equity finance, especially venture capital. Several policies come under this heading and overlap some what with policies towards innovation. This is only natural, as so much venture capital is directed to innovative new companies (see chapter 8). Other aspects of innovation policy are briefly discussed in the final section.

Loan guarantee schemes

Chapter 7 reviewed the theoretical case for credit rationing and under-investment in entrepreneurial ventures. This issue has received substantial attention in policy circles and has motivated various kinds of government intervention, including loan guarantee schemes (LGSs).