Population Ageing and Entrepreneurship: Theory and Evidence From OECD Countries

This paper studies how population ageing affects individuals' choice between entrepreneurship and employment with enterprises. We develop a theoretical model where individuals are different in their entrepreneurial ability. A representative worker integrates the professional status of all workers as: (1) a younger worker, (2) an older worker, and (3) a retiree. Entrepreneurs and workers are required to pay taxes to contribute to the pension fund. We find that a higher proportion of the elderly population leads to a lower proportion of individuals choosing to become entrepreneurs because of a higher tax burden. A higher pension replacement rate also discourages individuals from starting a business. Using data from OECD. Stat, Eurostat, and the World Bank database, our empirical results support the model's predictions.