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The Racial Wealth Gap: the Role of Entrepreneurship

Author

Listed:
  • Daniel Albuquerque

    (Bank of England)

  • Tomer Ifergane

    (London School of Economics (LSE)
    Centre for Macroeconomics (CFM)
    Ben-Gurion University)

Abstract

The racial wealth gap is one of the most striking and persistent disparities between Black and White households in the US. We study the determinants of this gap using a general equilibrium incomplete market model featuring dynamic discrete entrepreneurship choice and an empirically estimated income process. In the model, Black households face: (i) higher capital costs as entrepreneurs; (ii) a labour-income gap; and (iii) greater non-employment risk. We find that access to capital for Black entrepreneurs accounts for most of the racial wealth gap. Our model demonstrates that wealth transfers without social change cannot permanently address this gap and points towards addressing barriers faced by Black entrepreneurs as a key margin of intervention.

Suggested Citation

  • Daniel Albuquerque & Tomer Ifergane, 2023. "The Racial Wealth Gap: the Role of Entrepreneurship," Discussion Papers 2310, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2310
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    File URL: https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussion-Papers-2023/CFMDP2023-10-Paper.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Racial wealth gap; entrepreneurship; incomplete markets; wealth accumulation; financial frictions; wealth inequality;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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