Government interventions in market economies can impact heavily on both the welfare of entrepreneurs and the size of the entrepreneurial sector. Government intervention is often predicated on a belief that entrepreneurs generate valuable positive social and economic externalities, emanating from new ideas, new products, new employment and enhanced competitiveness. If entrepreneurs are unable to appropriate all of these benefits themselves (i.e. unable to ‘internalise’ the benefits), there might be too little investment in entrepreneurship for the social good, justifying government intervention.

Governments often also see entrepreneurship as a route out of poverty and dependence on state benefits, and as a means of achieving self-reliance. At the same time, though, governments often evince concern about the living and working conditions of the poorest and most vulnerable workers. These workers are often found in entrepreneurship, either as struggling small business owners or own-account self-employees.

At the outset it is helpful to explain what is meant by the term ‘public policy towards entrepreneurship’. Lundström and Stevenson (2005, 2007) distinguish between entrepreneurship policies, which focus on start-ups of new businesses, and SME policies, which focus on the stock of existing small businesses.