The negative impact of barriers to entry on income inequality

Barriers to entry such as fees, licensing, or educational requirements make it more difficult to start businesses. Problematically, many barriers to entry are due to regulatory capture and serve only to benefit incumbent firms. These regulations, which are created by government, often make it exceedingly difficult for low‐income individuals to start new businesses, denying individuals access to higher‐paying occupations. I estimate two models and find that barriers to entry increase income inequality. A one‐point decrease in the World Bank's ease of starting a business score equates to a 0.15–1.25‐point increase in the Gini coefficient.