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Household inequality, entrepreneurial dynamism and corporate financing


Braggion, Fabio; Dwarkasing, Mintra; Ongena, Steven (2020). Household inequality, entrepreneurial dynamism and corporate financing. Swiss Finance Institute Research Paper 14-27, University of Zurich.

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.

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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:25 June 2020
Deposited On:04 Dec 2020 09:22
Last Modified:05 Dec 2020 04:37
Series Name:Swiss Finance Institute Research Paper
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2422201
Other Identification Number:merlin-id:19546

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