Household Inequality, Entrepreneurial Dynamism, and Corporate Financing
80 Pages Posted: 23 Apr 2014 Last revised: 12 Jun 2020
Date Written: March 17, 2018
Abstract
Economic theories provide conflicting hypotheses on how wealth inequality affects entrepreneurial dynamism. To empirically investigate its impact, we construct local measures of household wealth inequality based on financial rents, home equity, and 1880 farmland. We identify its effects on entrepreneurship by instrumenting it with land distribution under the 1862 Homestead Act or US states’ removal of “death taxes”. Wealth inequality decreases firm entry and exit, and the proportion of high-tech businesses across metropolitan statistical areas. There is also less redistribution into public goods supportive of entrepreneurship such as schooling and the judiciary. Income per capita consequently grows more slowly.
Keywords: Wealth Inequality; Entrepreneurship; Homestead Act; EIG Taxes
JEL Classification: D31, G3, L26
Suggested Citation: Suggested Citation