Tax administrations in several European countries recently introduced special tax regimes for small and medium-sized enterprises (SME). Competitive disadvantages as well as SME’s particular im-portance for economic growth usually serve as justifications for the beneficial tax treatment of SMEs. However, the adequacy of tax incentives for SMEs has repeatedly been questioned as they may impose efficiency costs and may be superseded by more appropriate (non-tax) measures. This research project aimed to contribute analytical and empirical guidance to this discussion on special tax regimes for SMEs. In a first step, the impact of SME tax incentives on effective tax burdens in Europe was measured using the European Tax Analyzer and the Devereux-Griffith model. Based on these results, the tax impact on the level of entrepreneurship and the growth of SMEs was empirically explored. The research project additionally focused on the role of simplified tax accounting. Usually only restricted to non-corporate entities, special tax treatments may impact businesses’ choice of legal form. A further part of the project examined this relationship as well as related welfare implications and the role of compliance costs for SMEs.