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Does entrepreneurship really reduce income inequality?

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  • Bonaparte, Yosef
  • Kumar, Naman

Abstract

This paper examines whether entrepreneurial activities reduce social inequality. Using data from 62 countries, we find that countries with higher levels of entrepreneurship have lower income inequality. We also find that various cultural factors including gender wage gap and diversity indicators influence country-level entrepreneurship. When we use gender wage gap as an instrument to account for potential endogeneity in the decision to become an entrepreneur, the entrepreneurship-inequality relation becomes stronger. In economic terms, one standard deviation in entrepreneurship reduces income inequality by 6–11 %, relative to the mean. Together, these findings suggest that entrepreneurial activities can be an effective strategy for mitigating income disparities and promoting economic inclusivity.

Suggested Citation

  • Bonaparte, Yosef & Kumar, Naman, 2024. "Does entrepreneurship really reduce income inequality?," Finance Research Letters, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012637
    DOI: 10.1016/j.frl.2024.106234
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    References listed on IDEAS

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    1. Xavier Gabaix & Jean‐Michel Lasry & Pierre‐Louis Lions & Benjamin Moll, 2016. "The Dynamics of Inequality," Econometrica, Econometric Society, vol. 84, pages 2071-2111, November.
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    4. Fabio Braggion & Mintra Dwarkasing & Steven Ongena, 2021. "Household Inequality, Entrepreneurial Dynamism, and Corporate Financing [The colonial origins of comparative development: An empirical investigation]," The Review of Financial Studies, Society for Financial Studies, vol. 34(5), pages 2448-2507.
    5. Doerr, Sebastian & Drechsel, Thomas & Lee, Donggyu, 2022. "Income Inequality and Job Creation," CEPR Discussion Papers 17342, C.E.P.R. Discussion Papers.
    6. Christian E. Weller & Jeffrey B. Wenger, 2019. "Divergent fortunes: growing wealth inequality and widening entrepreneurship by age," Review of Social Economy, Taylor & Francis Journals, vol. 77(3), pages 326-360, July.
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    Cited by:

    1. Lan Pan & Haoran Wan & Xufeng Cui, 2024. "Exploring the Impact of Land Certification on Centralized Transfer in Rural China: The Roles of Timing, Inequality, and Governance," Land, MDPI, vol. 13(12), pages 1-24, November.

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    More about this item

    Keywords

    Entrepreneurship; Income inequality; Gini index; Gender wage gap; Instrumental variable;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G50 - Financial Economics - - Household Finance - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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