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Household wealth inequality, entrepreneurs’ financial constraints, and the great recession: evidence from the Kauffman Firm Survey

Author

Listed:
  • Fabio Braggion

    (CentER - Tilburg University
    Department of Finance)

  • Mintra Dwarkasing

    (Erasmus University Rotterdam
    Erasmus School of Economics, Business Economics)

  • Steven Ongena

    (University of Zürich, SFI and CEPR
    University of Zürich)

Abstract

We empirically test if household wealth inequality affects borrowing constraints of young entrepreneurs. We construct a measure of wealth inequality at the US county level based on the distribution of financial rents in 2004. We find that in more unequal areas, entrepreneurs are less likely to apply for a loan fearing that their applications will be turned down and they use more of their own funds to finance their ventures. In more unequal areas, the number of bank establishments per capita is lower, this effect being stronger during the 2007–2008 financial crisis.

Suggested Citation

  • Fabio Braggion & Mintra Dwarkasing & Steven Ongena, 2018. "Household wealth inequality, entrepreneurs’ financial constraints, and the great recession: evidence from the Kauffman Firm Survey," Small Business Economics, Springer, vol. 50(3), pages 533-543, March.
    • Handle: RePEc:kap:sbusec:v:50:y:2018:i:3:d:10.1007_s11187-017-9906-2
    DOI: 10.1007/s11187-017-9906-2
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    Cited by:

    1. Sebastian Doerr & Thomas Drechsel & Donggyu Lee, 2021. "Income inequality, financial intermediation, and small firms," BIS Working Papers 944, Bank for International Settlements.
    2. Prieger, James, 2023. "Local banking markets and barriers to entrepreneurship in minority and other areas: Does broadband availability help?," MPRA Paper 118102, University Library of Munich, Germany.
    3. Prieger, James E., 2023. "Local banking markets and barriers to entrepreneurship in minority and other areas," Journal of Economics and Business, Elsevier, vol. 124(C).
    4. Sebastian Doerr & Thomas Drechsel & Donggyu Lee, 2022. "Income Inequality and Job Creation," Staff Reports 1021, Federal Reserve Bank of New York.
    5. María-Teresa Aceytuno & Celia Sánchez-López & Manuela A. de Paz-Báñez, 2020. "Rising Inequality and Entrepreneurship during Economic Downturn: An Analysis of Opportunity and Necessity Entrepreneurship in Spain," Sustainability, MDPI, vol. 12(11), pages 1-16, June.

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    More about this item

    Keywords

    Wealth inequality; Entrepreneurship; Financial constraints;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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