Open AccessHousehold Inequality, Entrepreneurial Dynamism, and Corporate Financing
Author(s) -
Fabio Braggion,
Mintra Dwarkasing,
Steven Ongena
Publication year - 2020
Publication title -
review of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 12.8
H-Index - 190
eISSN - 1465-7368
pISSN - 0893-9454
DOI - 10.1093/rfs/hhaa097
Subject(s) - dynamism , inequality , economics , economic rent , metropolitan area , economic inequality , equity (law) , income distribution , distribution (mathematics) , labour economics , market economy , geography , quantum mechanics , archaeology , law , mathematics , physics , mathematical analysis , political science
Economic theories posit conflicting hypotheses on how wealth inequality affects entrepre-neurial dynamism. We investigate the impact of wealth inequality on business dynamics by constructing local measures of household wealth inequality based on financial rents, home equity, and 1880 farmland. We then identify the effect of wealth inequality on entrepre-neurship by instrumenting it with land distribution under the 1862 Homestead Act. Wealth inequality decreases firm entry and exit, and the proportion of high-tech businesses across metropolitan statistical areas. Wealth inequality also lowers the supply of public goods, such as education. Growth in income per capita consequently lags.
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