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Liberalizing Home-Based Business

The COVID-19 pandemic has unleashed an unprecedented disruption in commuting and strengthened the interest in creating and running home-based business. We evaluate a large-scale reform, Home Office Scheme, in Singapore that allows for business creation at one’s residential property and study whether the option of home-based entrepreneurship spurs entrepreneurial activities. Difference-in-difference estimate shows that the reform leads to a significantly higher level of business creation and the newly created firms in response to the reform have a higher survival rate. The effect is more pronounced for low-income, female individuals and industries with high startup capital, implying that financial constraint and non-pecuniary benefits are likely to be the main mechanisms driving the effect. The reform also encourages entrepreneurs to become serial entrepreneurs, and they open a larger business with similar survival rate for their second firm. Overall, our findings suggest that the program effectively attracts more entry into self-employment without significantly lowering the average quality of the pool.