State-Level Policy and Entrepreneurship: Dynamic Modeling

This research examines the dynamic relationship between state-level public policies and entrepreneurial activity in the United States. Using fixed-effects panel regression with forward lags of the dependent variable, I analyze the contemporaneous and prolonged effects of government size, taxation, and labor market policies on entrepreneurship. Furthermore, a Bayesian Panel Vector Autoregression (VAR) model, with impulse response function estimation, is used to model the dynamic responses of entrepreneurship to policy shocks. The findings reveal that a smaller government and reduced labor market regulation foster entrepreneurship, while the impact of taxation emerges with a delay. Additionally, I assess the average marginal effects of policy, accounting for state-level income and education.