Entrepreneurship, Frictions, and Wealth

Abstract

Although the role of financial constraints on entrepreneurial choices has received considerable attention, the effects of these constraints on aggregate capital accumulation and wealth inequality are less known. Entrepreneurship is an important determinant of capital accumulation and wealth concentration and, conversely, the distribution of wealth affects entrepreneurial choices in the presence of borrowing constraints. We construct a model that matches wealth inequality very well, for both entrepreneurs and non-entrepreneurs, and find that more restrictive borrowing constraints generate less wealth concentration, but also reduce average firm size, aggregate capital, and the fraction of entrepreneurs. We also find that voluntary bequests are an important channel that allows some high-ability workers to establish or enlarge an entrepreneurial activity: with accidental bequests only, there would be fewer large firms, fewer entrepreneurs, and less aggregate capital, but also less wealth concentration.

Causal Relationship between Entrepreneurship Povertyand Income Inequality in Thailand

“…Moreover, using supporting policy to encourage entrepreneurship, to reducing inequality could be success in the society that low income, low wealth and relatively uneducated [26]. This is supported by Quadrini [27], Meh [28] and Cagetti and De Nardi [29] that entrepreneurship leads to wealth concentration due to the higher saving rate of entrepreneurs [27].…”

Dynamic Status Effects, Savings, and Income Inequality

“…Clearly, the proposition allows for a third pattern according to which the saving rate first increases, overshoots its steady state level, and eventually declines towards its steady state level. 18 Unless needed for clarity, we omit time indexes in what follows.…”

“…Now, consider the impact of a dynamic status effect, E(c, k) < 0. Once this effect becomes sufficiently strong, E(c, k) < 0 and h(k) > 0 in (18). In this case, the dynamic status effect induces households to reduce their consumption growth rate, ceteris paribus.…”

“…Consider the right hand side of the equivalence in (18). The term in square brackets is negative, as s * > IES(c, k).…”

“…The left hand side of the inequality is greater than or equal to zero, as E(c, k) ≤ 0. Consequently, (18) implies that h(k) > 0.…”