Office of Economic

Research

Research Publications

2006

January 2007
Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business

Administration (SBA) is an independent voice for small business within the federal government. Appointed by the President and confirmed by the U.S. Senate,

the Chief Counsel for Advocacy directs the office. The Chief Counsel advances

the views, concerns, and interests of small business before Congress, the White

House, federal agencies, federal courts, and state policy makers. Economic

research, policy analyses, and small business outreach help identify issues of

concern. Regional Advocates and an office in Washington, DC, support the Chief

Counsel’s efforts.

For more information on the Office of Advocacy, visit http://www.sba.gov/advo,

or call (202) 205-6533. Receive email notices of new Office of Advocacy information by signing up on Advocacy’s Listservs at http://web.sba.gov/list.

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Office of Advocacy

U.S. Small Business Administration

Washington, D.C.

January 2007

Office of Economic

Research

Research Publications

2006
The full text of this report is available on the Office of

Advocacy’s Internet site at http://www.sba.gov/advo.

Reprints in paper or microfiche are available for purchase

from the National Technical Information Service, 5285 Port

Royal Road, Springfield, VA 22161.

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Printed on recycled paper.
Foreword

Each year, the Office of Advocacy of the U.S. Small Business Administration is tasked

with documenting the importance of entrepreneurship to the American economy and with

highlighting policy issues of relevance to small firms. This report summarizes the publications produced by the Office of Advocacy's Office of Economic Research in 2006.

There were two conference proceedings released in 2006. First, Advocacy organized a

symposium in September 2005 to discuss the Regulatory Flexibility Act. The event,

which was held in conjunction with the law's 25th anniversary, examined the progress

to date in terms of reducing regulatory burdens for small businesses, and it also discussed suggested changes to the law that would further enhance its effectiveness. The

proceedings of the symposium were released in January 2006. 

In April 2006, the Office of Advocacy cosponsored a conference, "Entrepreneurship:

The Foundation for Economic Renewal in the Gulf Coast Region," with the Ewing

Marion Kauffman Foundation, the Public Forum Institute, and the Gulf Coast Urban

Entrepreneur Partnership. This conference was organized as a response to Hurricanes

Katrina and Rita with the intent of focusing attention on the small business owners in

the affected areas. Despite a multitude of both short-term and long-term challenges

awaiting the citizens of Alabama, Louisiana, and Mississippi, many of the participants

cited the opportunities that await entrepreneurs in their area. Some of the speakers

noted that the enormity of the devastation has given them the unique ability to reinvent

themselves economically. Indeed, entrepreneurs will play a very large role in their economic recovery.

Conferences constitute just a portion of what Advocacy produces each year. The office

continues to produce a number of publications that are regularly referred to in speeches, the media, lectures, and academic research. In 2006, we updated a number of regular reports that are frequently cited, such as the Frequently Asked Questions, Quarterly

Indicators, The Small Business Economy, State & Territory Small Business Profiles,

and the annual lending study. Each of these reports serves as a "portal" to the rest of

our research and data products. As such, they are designed to serve as introductory
products for those who are unfamiliar with the Office of Advocacy or small business

research in general. We hope those who want to learn more will delve deeper into the

rest of the research generated by this office and others. 

Continuing our recent tradition, The Small Business Economy features two chapters by

external sets of authors—Mark Weaver, Pat Dickson, and George Solomon on the

impact of education on entrepreneurship and Steve Quello and Graham Toft on an

approach to economic development that stresses fast-growing local entrepreneurs

("economic gardening"). We hope that these chapters serve as a springboard for additional research and discussion.

Other studies released in 2006 are worthy of mention. Joanne Pratt documented the

importance of home-based sole proprietors. Two research reports focused on economic development, with one exploring rural entrepreneurship and the other examining the

contributions of small firms to urban growth. Charles and Adrian Cowen surveyed

financial institutions on their use of credit scoring for small business lending, and a

number of studies concentrated on small businesses’ ability to win contracts from the

federal government. With the release of new Survey of Business Owners data from the

U.S. Census Bureau, we were able to release an analysis of women in business. In

2007, the Office of Advocacy will release information on other demographics, including minorities, veterans, and service-disabled veterans.

In putting the research publications for 2006 together in this catalog, we are providing

our constituents with a snapshot of our research efforts during the calendar year. Keep

in mind that all of the Office of Advocacy's research—including both before and after

2006—can be found online at http://www.sba.gov/advo/research. For regular updates

on our research as it is released, please join Advocacy's research listserv, which can be

found at http://web.sba.gov/list. We appreciate your interest in small business.

Chad Moutray, Ph.D.

Chief Economist and Director

Office of Economic Research
Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii

Office of Economic Research, Research Publications 2006 . . . . . . . . . . . . . . . . . . . . . 1

Banking and Financial Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

General Small Business and Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Innovation and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Labor and Employment Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Owner Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Regional Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Office of Economic Research

Research Publications 2006

How Did Small Business-Owning Households Fare During the Longest U.S. 

Economic Expansion?

George W. Haynes & Charles Ou, released June 2006,

http://www.sba.gov/advo/research/rs276tot.pdf

During the 1990s, the U.S. economy enjoyed its longest expansion on record. U.S.

household income and wealth rose significantly during this period. This report examines how households that owned businesses fared during this boom period. The authors

found that households owning small businesses were more likely to be found in the top

echelons of income and wealth than households that did not own a business. However,

over the course of the study period, the likelihood of being in the high income and

high wealth category increased at a faster rate for non-business-owning households

than for households with small businesses. In addition, small business owners saw

their share of aggregate household wealth decline from 42.5 percent in 1992 to 40.6

percent in 2001.

Banking and SME Financing in the United States

Charles Ou, Working Paper, released June 2006,

http://www.sba.gov/advo/research/rs277tot.pdf

Commercial banks have been the leading supplier of debt capital to small firms in the

United States. With the increasing availability of small business lending statistics and

research on the topic, it becomes possible to provide an overview of the small business

loan markets in the United States, as well as an evaluation of the impact of major

developments on the cost and availability of loans to small businesses. The paper

begins with a brief discussion of the market – the borrowers, lenders, and market

organization – followed by a discussion of major developments in U.S. financial markets and the banking industry. Overall, it finds that loan markets for most small business borrowers in the United States have become more competitive over the past

decade, evidenced by the emergence of a nationwide market for credit lines and credit

cards and the entry of large regional banks in local markets. However, the impact of

increased competition on the cost of funds to small firms, as indicated by the rate

spreads between small business rates and the rates paid by the banks’ best prime customers, is more difficult to assess because of data limitations.

Banking and

Financial Issues

Access these reports online at www.sba.gov/advo Research Publications 2006 1
Banking and

Financial Issues

2 Office of Economic Research

A Survey Based Assessment of Financial Institution Use of Credit Scoring for Small

Business Lending 

Charles D. Cowan and Adrian M. Cowan, released November 2006,

http://www.sba.gov/advo/research/rs283tot.pdf 

Whereas the use of credit scoring for consumer loans has been commonplace in banks

for quite some time, the use of credit scoring for small business loans is a more recent

phenomenon. The study attempts to answer several questions related to the use of credit

scoring in small business lending, such as: How have banks incorporated credit scoring

in their small business lending operations? How does credit scoring influence the availability of credit to small businesses? What factors predict the likelihood of the use of

small business credit scoring by banks? Three basic investigations were conducted for

this research. The study investigated the use of credit scoring within banks. The study

estimated how small business lending and micro business lending were affected by the

adoption of credit scoring by banks. Finally, the study investigated the factors that

affected the likelihood that a bank would use credit scoring for small business loans.

Overall, it found that while credit scoring has yet to become a primary instrument in

loan underwriting for a majority of banks in the United States, there are indications that

credit scoring may be providing more borrowing opportunities to small businesses. 

Small Business and Micro Business Lending in the United States for Data Years

2004-2005

Charles Ou and Victoria Williams, released December 2006,

http://www.sba.gov/advo/research/lending.html

The Office of Advocacy prepares an annual study of lending to small firms, using the

most recent data available on small and micro business loans to small firms and on the

lending institutions that serve them. This study provides a brief review of the lending

activities based on two types of data reported by banks to their regulating agencies—

call reports and reports required by the Community Reinvestment Act (CRA). Because

data are available only by the size of the loan, small business loans are defined as business loans under $1 million, and micro business loans are those under $100,000.

Access these reports online at www.sba.gov/advo
General Small

Business and

Entrepreneurship

Quarterly Indicators: The Economy and Small Business

Chad Moutray

Fourth Quarter 2005, released February 2006:

http://www.sba.gov/advo/research/sbqei0504.pdf

First Quarter 2006, released May 2006:

http://www.sba.gov/advo/research/sbqei0601.pdf

Second Quarter 2006, released August 2006:

http://www.sba.gov/advo/research/sbqei0602.pdf 

Third Quarter 2006, released November 2006:

http://www.sba.gov/advo/research/sbqei0603.pdf 

This regular publication pulls together data from a variety of sources to highlight quarterly economic trends relevant to small businesses.

The Impact of Location on Net Income: A Comparison of Home-based and 

Non-home-based Sole Proprietors

Joanne H. Pratt Associates, released May 2006,

http://www.sba.gov/advo/research/rs275tot.pdf 

Using 2002 sole proprietorship data, the impact of location on net income was analyzed using a sample of 1.6 million profitable nonfarm sole proprietorships that took a

home office business deduction (home-based businesses) and 1.9 million that deducted

rent for other business property (non-home-based businesses). Home-based (584,000)

and non-home-based (770,000) firms reporting a deficit were compared with profitable

businesses. In 2002, home-based businesses (HBB) earn lower average receipts

($62,523) and net income ($22,569) than businesses operated in rented space (nonHBB) ($178,194 and $38,243, respectively). Home-based firms gain a higher return on

gross revenues compared with non-HBBs (36 percent versus 21 percent).

Access these reports online at www.sba.gov/advo Research Publications 2006 3
General 

Small Business

Frequently Asked Questions

Chad Moutray, released June 2006,

http://www.sba.gov/advo/stats/sbfaq.pdf 

This document serves as a summary of other research materials and provides a series

of quick, easy-to-recite facts for an external audience to recognize the importance of

small business in the economy. As such, it is an excellent “introductory” publication

for individuals to acquaint themselves with the Office of Advocacy’s research and data.

Small Business Profiles for the States and Territories

Victoria Williams, released September 2006,

http://www.sba.gov/advo/research/profiles/ 

The economic condition of small businesses in the United States, overall and in each

of the 50 states, the District of Columbia, and the U.S. territories is illustrated. Each

state profile contains sections on the following topics: the number of firms, industry

composition, small business income, banking, women’s and minority business ownership, and employment.

Volatility and Asymmetry of Small Firm Growth Rates Over Increasing Time Frames

Rich Perline, Robert Axtell, and Daniel Teitelbaum, Working Paper, released

December 2006,

http://www.sba.gov/advo/research/rs285tot.pdf 

With the emergence of new longitudinal data sets, researchers are now able to better

address questions about the dynamics of businesses. This study focuses on characterizing the large dispersion of business growth rates over increasing timeframes and considers whether employment expansions and contractions occur symmetrically. Previous

studies found annual business growth rates having heavy tailed distributions (many

large expansions and contractions). This study found that over longer timeframes, the

distributions slowly move towards lighter tails (fewer large growth changes). This slow

change in the distributions indicates firms tend to maintain their employment change

trend. The study also found evidence to support the belief that a systematic difference

between job creation and job destruction exists. There are more large employment

swings among shrinking businesses than among expanding businesses.

4 Office of Economic Research Access these reports online at www.sba.gov/advo
The Small Business Economy: A Report to the President, 2006 Edition

Kathryn Tobias, editor, with various contributors; released December 2006,

http://www.sba.gov/advo/research/sb_econ2006.pdf 

In this annual publication, the Office of Advocacy reviews the economic environment

for small businesses in the year 2005, as well as the financial and federal procurement

marketplaces. It also features chapters on women in business, the importance of education to entrepreneurship, a discussion of “economic gardening,” and a review of

Regulatory Flexibility Act activities for fiscal year 2005.

Chapter 1: “The Small Business Economy” by Brian Headd

Chapter 2: “Small Business Financing in 2005” by Victoria Williams and Charles Ou

Chapter 3: “Federal Procurement from Small Firms” by Major Clark, III

Chapter 4: “Women in Business” by Ying Lowrey

Chapter 5: “Entrepreneurship and Education: What is Known and Not Known about

the Links between Education and Entrepreneurial Activity” by Mark Weaver, Rowan

University; Pat Dickson, Wake Forest University; and George Solomon, George

Washington University

Chapter 6: “Economic Gardening: Next Generation Applications for a Balanced

Portfolio Approach to Economic Growth” by Steve Quello, CCS Logic, and Graham

Toft, Growth Economics

Chapter 7: “An Overview of the Regulatory Flexibility Act and Related Policy” by

Claudia Rodgers and Sarah Wickham

Appendix Data Tables by Brian Headd and Victoria Williams

Innovation and Small Business Performance: Examining the Relationship between

Technological Innovation and the Within-Industry Distributions of Fast Growth Firms

Jonathan T. Eckhardt and Scott Shane, Peregrine Analytics, LLC, released March 2006,

http://www.sba.gov/advo/research/rs272tot.pdf

Theory holds that industry conditions favorable to the performance of small private

firms are fundamentally different from industry conditions favorable to the performance of large, established firms. However, research into this question has been hindered by data limitations. This report seeks to determine empirically, via examination

of a unique dataset, how changes in conditions of some industries, e.g., technological

Innovation and

Technology

Access these reports online at www.sba.gov/advo Research Publications 2006 5

General 

Small Business
intensity and production and sales intensity, affect the performance of fast-growing

small firms and fast-growing large public firms in those industries. It finds that industries that are more technically oriented (as evidenced by increased employment of scientists and engineers) are more accommodating to small fast-growing private firms. As

industries become more production-oriented, they become more accommodating to

large fast-growing public firms.

Identification of the Technology Commercialization Strategies of High-tech Small Firms

Diana Hicks, Dirk P. Libaers, Alan L. Porter, and David J. Schoeneck (Search

Technology, Inc.), released December 2006,

http://www.sba.gov/advo/research/rs289tot.pdf

Finding highly innovative companies is often difficult because it is frequently their

business strategy that makes them innovative, not necessarily what they produce. This

study experiments with a unique method to find these companies: searches of innovative terms on their websites. The goal was to capture a strategy in a firm’s business

model rather than classifying businesses by goods or service production. This is

important, as small, highly innovative companies have been at the forefront of creating

the industries of the future. Searching for innovative terms on firms’ websites determined that high-tech strategies could be found on known high-tech small firms but not

on the control group. This indicates that this method holds promise for gaining insight

into finding highly innovative firms. 

Health Insurance Deductibility and Entrepreneurial Survival

Tami Gurley-Calvez, released April 2006,

http://www.sba.gov/advo/research/rs273tot.pdf

See the description of this study in the “Tax” section.

Labor and

Employment

Benefits

6 Office of Economic Research Access these reports online at www.sba.gov/advo

Innovation and

Technology
Owner

Demographics

Women in Business: A Demographic Review of Women’s Business Ownership

Ying Lowrey, released August 2006,

http://www.sba.gov/advo/research/rs280tot.pdf 

Focusing on the special characteristics of women-owned businesses and women’s economic well-being, this report provides newly released information on women in the

work force and women-owned businesses, including women’s population statistics,

their labor force participation, age, education, occupation, work schedules, average

personal and household income, business ownership, and business dynamics. Among

the paper’s findings are that between 1997 and 2002, the numbers of women-owned

firms overall increased by 19.8 percent and of women-owned employer firms, by 8.3

percent. In 2002, women owned 6.5 million or 28.2 percent of nonfarm U.S. firms.

More than 14 percent of these women-owned firms were employers, with 7.1 million

workers and $173.7 billion in annual payroll. Women-owned firms accounted for 6.5

percent of total employment in U.S. firms in 2002 and 4.2 percent of total receipts.

The largest shares of women-owned business receipts were in wholesale and retail

trade and manufacturing in both 1997 and 2002. According to 2002 data, significant

proportions of women-owned businesses were in professional, scientific, and technical

services, and in health care and social assistance, but the share of receipts in these

businesses was smaller than in the trades and manufacturing.

Impact of GSA’s Information Technology Cooperative Purchase Program on Small

Businesses

Eagle Eye Publishers, released July 2006,

http://www.sba.gov/advo/research/rs278tot.pdf 

Cooperative purchasing is a buying method that pools buyers in order to procure products or services in larger volumes, thereby leveraging lower prices, a wider selection of

services, and other favorable terms from suppliers. To allow local jurisdictions to take

advantage of cooperative purchasing arrangements available to federal government

agencies, Section 211 of the E-Government Act of 2002 directed the General Services

Administration (GSA) to open up the federal supply schedule to state, local, regional,

or tribal governments (including local educational agencies or institutions of higher

education). In 2003, GSA opened up the federal supply schedule for information technology (IT), or federal supply classification code group 70. This group is defined as

Access these reports online at www.sba.gov/advo Research Publications 2006 7

Procurement
Procurement

8 Office of Economic Research

automated data processing equipment (including firmware), software, supplies, support

equipment, and services. This paper reviews GSA’s IT cooperative purchasing program, and it evaluates other cooperative purchasing programs that are available to state

and local officials. In particular, this analysis focuses on the impact of such programs

on small business owners, who may or may not benefit from this arrangement.

The Impact of Government-wide Acquisition Contracts on Small Business

Eagle Eye Publishers & Jack Faucett Associates, released August 2006,

http://www.sba.gov/advo/research/rs279tot.pdf

In the mid-1990s, Congress passed a series of initiatives designed to fundamentally

reform the way agencies acquired information technology-related goods and services

from the private sector. The goal of these reforms was to implement results- and performance-based management practices that made agency procurement more timely and

efficient and ensured that agencies were getting maximum value out of the taxpayer

dollars they spent. One area in greatest need of procurement reform was information

technology (IT). Congress passed a landmark measure in 1996 called the Information

Technology Management Reform Act (ITMRA), also known as the Clinger-Cohen

Act. Among the provisions, ITMRA included a section encouraging agencies to create

multiple-award, multi-agency contracts for the purchase of IT goods and services, with

the U.S. General Services Administration (GSA) playing the primary role. These contracts came to be known as government-wide acquisition contracts or GWACs. This

report examines small business utilization under GWACs vehicles, both generalized

contracts and those designated specifically for small businesses.

Encouraging New Opportunities for Small Business as Prime Contractors Through

Changes to DOE’s Management and Operating and Other Management Contracts

A feasibility study conducted by the U.S. Small Business Administration, the Office of

Advocacy, the U.S. Department of Energy (DOE), the National Nuclear Security

Administration, and the Defense Nuclear Facilities Safety Board, released August 2006,

http://www.sba.gov/advo/research/jrdoe.pdf

This report implements Section 6022(c) of the Emergency Supplemental

Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief, 2005.

Access these reports online at www.sba.gov/advo
That section requires the conduct of a study regarding the feasibility of possible

changes to the DOE’s management and operating (M&O) and other management contracts to encourage new opportunities for small businesses to increase their role as

prime contractors. A study group was convened to conduct this study and prepare this

report of its findings. The study group reviewed the various segments of the Small

Business Act and its implementing and supplementing regulations and guidelines. It

also reviewed the nature of DOE’s M&O contracts. The study group further analyzed

DOE’s small business program activities and the history of small business goaling

within DOE. Finally, the study group identified a number of potential changes that

could, in theory, be made with respect to DOE’s M&O and other management contracts and assessed the implications of these changes, not only for increasing prime

contracting opportunities but also for the effects those changes would have on DOE

and its mission. This report summarizes these study analyses.

The Government’s Role in Aiding Small Business Federal Subcontracting Programs

in the United States

Major Clark, III, Chad Moutray, and Radwan Saade, Working Paper, released

September 2006,

http://www.sba.gov/advo/research/rs281tot.pdf 

The purpose of the paper is fourfold. First, it discusses the importance of the small

business sector to the overall economy. Second, it lays out the policy framework for

the federal government’s involvement in requiring “other than small” federal prime

contractors to subcontract with small businesses. This policy discussion focuses on the

period from 1958 to the present. Third, it examines the legislative and regulatory

approaches that have been put forth to increase subcontracting opportunities for small

businesses; and fourth, it discusses steps needed to improve the American small business subcontracting program to accommodate greater participation by these businesses

in new and emerging global markets.

Access these reports online at www.sba.gov/advo Research Publications 2006 9

Procurement
10 Office of Economic Research Access these reports online at www.sba.gov/advo

An Empirical Approach to Characterize Rural Small Business Growth and Profitability

Innovation & Information Consultants, Inc., released February 2006,

http://www.sba.gov/advo/research/rs271tot.pdf 

Changes in the business cycle have had mixed effects on the rural economy. Some

parts have fed off the expansion, while others, such as more remote rural areas and

farm-dependent communities, are struggling to keep up. With this in mind, this study

examines the factors that lead to small business growth in rural areas. Why do certain

rural regions expand more than others? Past studies suggest that possible explanatory

factors might include population trends, educational attainment, economic conditions

at the federal and local level, access to business capital and infrastructure, the availability of technology, and various quality of life measures. This study explores each of

these factors, supplementing the examination with case study analysis from six states:

Kentucky, Maine, Nebraska, Nevada, North Carolina, and Utah. It finds that areas that

experience greater population growth also have increased changes in the number of

small businesses. The growth rates of rural small businesses are influenced by different

factors during periods of varying economic conditions. Between 1997 and 1999, significant growth in the number of rural small businesses was influenced by demographic, economic, and quality of life variables. During the period that included the recession, 2000 to 2002, economic variables were more significant.

Entrepreneurship: The Foundation for Economic Renewal in the Gulf Coast Region,

Kathryn Tobias, editor; Conference Proceedings, released September 2006,

http://www.sba.gov/advo/research/proceedings06.pdf 

As government and industry respond to the devastation of the Gulf Coast region after

Hurricanes Katrina and Rita, it is important that rebuilding the small business economy receive special attention. Small business owners can play a large role in the urban

renewal that takes place in New Orleans and the Gulf Coast region. On April 11, 2006,

a policy conference was held in New Orleans and cosponsored by the Office of

Advocacy, the Ewing Marion Kauffman Foundation, and the Gulf Coast Urban

Entrepreneur Partnership. Various speakers discussed the devastation in terms of the

economic costs to various communities. Despite the dire statistics, though, an overriding theme of the conference was the enormous opportunity that awaits those entrepreneurs willing to invest their ideas and resources in new enterprises.

Regional Economic

Development
The Economic Role of Small Businesses using Large Data Sets: An Analysis of the

Contributions of Small Firms to Urban Growth

Steven G. Craig and Janet E. Kohlhase, released December 2006,

http://www.sba.gov/advo/research/rs287tot.pdf 

In the past, large cities were primarily characterized by downtown centers of employment. Recent decades, however, have seen a proliferation of employment subcenters in

areas outside of downtown. The rise of urban employment subcenters also coincides

with a revitalization of major cities in the U.S. Thus, the role of small businesses in the

formation, maintenance, and growth of employment subcenters provides an excellent

window for observing the relative role of small and large firms in economic development. The research described in this project contributes important new understanding

of the role of small businesses in economic growth. It looks at the economic development of different parts of one large city (Houston, Texas) and seeks to determine

whether large firms are a significant cause of urban economic growth, or alternatively,

whether small firms perform a key role. Overall, the authors find that small firms play

a vital role in maintaining economic growth in urban areas. In addition, they find that

small businesses compete effectively with large firms for land near the employment

centers. While large firms are more likely to be in employment centers in the central

business district and more established subcenters surrounding downtown, firm size is

less important for newer and emerging subcenters that are farther from downtown.

The Regulatory Flexibility Act (RFA) Symposium

Kathryn Tobias, editor, with various contributors; Conference Proceedings, released

January 2006

Part I: http://www.sba.gov/advo/rfa_sym0905.pdf

Part II: http://www.sba.gov/advo/rfa2_sym0905.pdf 

The Regulatory Flexibility Act (RFA) is a landmark piece of legislation that has had

the goal since its passage in 1980 of changing the culture of federal regulatory agencies to make them more aware of the effects of their regulations on small businesses

and other small entities. By making regulations more rational and reflective of realworld business situations, the law has the potential to let small businesses be more productive, more powerful engines of economic growth. The Office of Advocacy, along

Access these reports online at www.sba.gov/advo Research Publications 2006 11

Regulation

Regional Economic

Development
12 Office of Economic Research

with several cosponsors, organized a symposium in conjunction with the RFA’s 25th

anniversary to take an in-depth look at the law—what has worked well, what has not,

and what innovations are emerging—to prepare for moving forward into the next quarter century. The symposium was held on September 19 and 20, 2005. The proceedings

publication summarizes an excellent exchange of ideas from various speakers, moderators, and panelists. 

Health Insurance Deductibility and Entrepreneurial Survival

Tami Gurley-Calvez, released April 2006,

http://www.sba.gov/advo/research/rs273tot.pdf

The purpose of this research is to add to the policy debate by investigating whether

closing the health insurance tax incentive gap between employees and the selfemployed enhances entrepreneurial survival. The income tax deductibility of health

insurance premiums for self-employed filers has a positive effect on the rate of entrepreneurial survival. The study finds that the rate of exit from entrepreneurial activity

decreases when filers are permitted to deduct a portion of health insurance premiums

on federal income tax filings. The effect holds for both single filers (who are generally

younger, earlier in their career, and less risk-averse), as well as for married filers (who

are often older and have dependent family members). The effect of the deduction on

married filers is greatest. Married filers who took the deduction are more likely to

remain in an entrepreneurial activity. As the value of the deduction grows, single filers’

exit rates decline more than those of married filers. The findings generally confirm the

observation that lower tax rates on entrepreneurial income tend to increase entrepreneurial activity; larger deductions of health care expenditures reduce the tax bills of

those who purchase insurance. The observed decreases in the probability of entrepreneurial exit are an important consideration when evaluating policies to allow a health

insurance deduction in calculating payroll tax liabilities.

Access these reports online at www.sba.gov/advo

Regulation

Tax
The Impact of Location on Net Income: A Comparison of Home-based and 

Non-home-based Sole Proprietors

Joanne H. Pratt Associates, released May 2006,

http://www.sba.gov/advo/research/rs275tot.pdf

See the description of this study in the “General Small Business” section.

State Tax Policy and Entrepreneurial Activity

Donald Bruce and John Deskins, released November 2006,

http://www.sba.gov/advo/research/rs284tot.pdf 

Engaging in entrepreneurship and starting a small business can be made more or less

difficult by the structure of income taxes. While federal income taxes are the single

largest tax on small business, state and local taxes can also affect small firms. Recent

studies have shown how federal income tax rates can affect decisions to engage in

entrepreneurial activities; this study tests whether the same pattern holds for state tax

policy. The paper examines the impact of both state tax rates and tax composition (i.e.,

which taxes are imposed and in what proportion) on entrepreneurship rates. There is

substantial variation in both the structure of taxes and tax rates across the 50 states. The

paper identifies the effects of tax rates and tax composition on entrepreneurship.

Overall, it concludes that state tax policy, including both tax rates and the type of taxes

in a state’s portfolio, has only a modest effect on aggregate state entrepreneurship rates.

Access these reports online at www.sba.gov/advo Research Publications 2006 13
14 Office of Economic Research Access these reports online at www.sba.gov/advo

Advocacy, Office of, 8, 10, 11

Axtell, Robert, 4

Banks, 1, 2

Benefits, 6

Bruce, Donald, 13

Business ownership and wealth, 1

Cities, economic development in, 11

Clark, Major III, 5, 9

Clinger-Cohen Act, 8

Commercialization of technology, 6

Community Reinvestment Act, 2

Cooperative purchasing, 7

Cowan, Adrian M., 2

Cowan, Charles D., 2

Craig, Steven G., 11

Credit markets, 1

Credit scoring, 2

Defense Nuclear Facilities Safety Board, 8

Deskins, John, 13

Dickson, Pat, 5

Eagle Eye Publishers, 7, 8

Eckhardt, Jonathan T., 5

Economic development, 10

Economic expansion, 1

Economic gardening, 5

Economy, 3, 5

Education and entrepreneurship, 5

E-Government Act of 2002, 7

Emergency Supplemental Appropriations Act for Defense,

the Global War on Terror, and Tsunami Relief of 2005, 8

Employment

growth of, 4

by state, 4

of women-owned firms, 7

Energy, U.S. Department of, 8

Ewing Marion Kauffman Foundation, 10

Financing, 1, 5

Frequently asked questions, 4

General Services Administration, 7

Government-wide acquisition contracts, 8

Growth of firms, 4

Gulf Coast Urban Entrepreneur Partnership, 10

Gulf Coast and economic development, 10

Gurley-Calvez, Tami, 6, 12

Haynes, George W., 1

Headd, Brian, 5

Health insurance, 6

Hicks, Diana, 6

Home-based businesses, 3, 13

Houston, Texas, and economic development, 11

Hurricanes Katrina and Rita, 10

Income

and business location, 3

by state, 4

of women-owned firms, 7

Industries 

by state, 4

of women-owned firms, 7

Information technology

government purchase of, 7

Information Technology Management Reform Act, 8

Innovation, 5, 6

Innovation & Information Consultants, 10

Jack Faucett Associates, 8

Kentucky, rural businesses in, 10

Kohlhase, Janet E., 11

Lending, 2

Index
Access these reports online at www.sba.gov/advo Research Publications 2006 15

Libaers, Dirk P., 6

Location of businesses, 3

Lowrey, Ying, 5, 7

Maine, rural businesses in, 10

Management and operating contracts, 8

Marriage and health care deductibility, 12

Minority business ownership by state, 4

Moutray, Chad, 3, 4, 9

National Nuclear Security Administration, 8

Nebraska, rural businesses in, 10

Nevada, rural businesses in, 10

New Orleans, Louisiana, and economic development, 10

North Carolina, rural businesses in, 10

Ou, Charles, 1, 2, 5

Payroll of women-owned firms, 7

Perline, Rich, 4

Porter, Alan L., 6

Pratt, Joanne H., 3, 13

Procurement, 5, 7

Proprietorships, 3

Quello, Steve, 5

Regulatory Flexibility Act, 5, 11

Rodgers, Claudia, 5

Rural businesses, 10

Saade, Radwan, 9

Schoeneck, David J., 6

Shane, Scott, 5

Small business FAQs, 4

Solomon, George, 5

States, small business performance in, 4

Subcontracting, 9

Tax policy

and health care deductibility, 12

in states, 13

Technology

commercialization of, 6

and innovation, 5

Teitelbaum, Daniel, 4

Tobias, Kathryn J., 5, 10, 11

Toft, Graham, 5

Urban businesses, 11

Utah, rural businesses in, 10

Wealth and business ownership, 1

Weaver, Mark, 5

Wickham, Sarah, 5

Williams, Victoria, 2, 4, 5

Women's business ownership, 5, 7

by state, 4