Peer-Reviewed Research
The Incentives Are Working
Nobody starts a company because of a tax incentive. But QSBS reduces the penalty for taking the risk — and the data shows that matters. When the exclusion was expanded to 100% in 2010, startup investment increased, more companies were created, and more people were employed at startups.
~12%
Investment in startup firms increased by approximately 12% after the 100% exclusion
Method: Within-firm variation comparing funding rounds before/after SBJA 2010
Chen & Farre-Mensa (2023/2025) ↗
QSBS-eligible industries experienced more firm births, more startup employment, and increased first-round VC
Method: Diff-in-diff comparing eligible vs ineligible industries after 2010 increase to 100%
What the Research Shows
Edwards & Todenhaupt (2020)
This study examined the Small Business Jobs Act of 2010 (SBJA), which permanently raised the QSBS exclusion to 100%. Using within-firm variation — comparing funding rounds for the same startup before and after the law change — they found that investment in startup firms increased by approximately 12% after the 100% exclusion took effect.
This is a causal finding, not just a correlation. By comparing funding rounds within the same firm, the study controls for firm-specific characteristics. The increase in investment is attributable to the change in tax treatment of potential gains.
Chen & Farre-Mensa (2023/2025)
This study used a difference-in-differences approach, comparing QSBS-eligible industries to ineligible industries before and after the 2010 expansion to 100% exclusion. They found that QSBS-eligible industries experienced more firm births, more startup employment, and increased first-round venture capital.
The findings suggest QSBS doesn't just redirect existing investment — it generates new economic activity. More companies are formed, more people are hired at startups, and more early-stage capital flows into the ecosystem.
Why this matters for state policy
States considering QSBS decoupling are proposing to remove an incentive that peer-reviewed research shows actually works. The 100% exclusion enacted in 2010 led to measurably more startup investment, more companies, and more startup jobs.
Decoupling at the state level doesn't eliminate the federal incentive — but it does create a tax penalty for founders, employees, and investors in that state. The research suggests this penalty has real consequences for startup formation and investment.