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Private Capital Markets and Inequality

Author

Listed:
  • Gocmen, Ararat
  • Martinez-Toledano, Clara
  • Mittal, Vrinda

Abstract

This paper examines how expanding private capital markets contribute to rising economic inequalities in the U.S. We show that the share of early-stage financing raised from U.S. high-net-worth individuals tripled from 2004 to 2022. Exploiting the expansion of the QSBS tax exclusion, we find that HNWIs’ investments made startups 5.6% more likely to stay private. Counterfactual simulations reveal that HNWIs’ excess returns on early-stage investments explain 26% of the growth in the top 0.5% wealth share over 2010-2022. Finally, investor entry increased incumbents’ returns and encouraged further investments, generating a self-reinforcing feedback loop between private capital market growth and inequality.

Suggested Citation

  • Gocmen, Ararat & Martinez-Toledano, Clara & Mittal, Vrinda, 2026. "Private Capital Markets and Inequality," CEPR Discussion Papers 21478, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21478
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    File URL: https://cepr.org/publications/DP21478
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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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