Income inequality and entrepreneurship

Abstract

Many scholars argue that entrepreneurship concentrates wealth not only because rich families choose entrepreneurial occupations more often but also because entrepreneurs tend to earn and save more income than workers. However, based on panel data obtained from 54 countries during the 2006–2012 period, this empirical study found that public policies targeting formal and informal entrepreneurs are associated with decreased inequalities in the distribution of income. The data reveal no significant effect of high-aspiration entrepreneurs or newly registered firms on income distribution, suggesting that the informal information captured in the ‘total entrepreneurial activity’ measurement is a crucial factor explaining the variations observed in income inequality. Because entrepreneurial activity could be particularly successful in decreasing income inequality if targeted at the informal segments of society, the novel findings presented here open a new theoretical perspective that contradicts the commonly used conceptual framework, which tends to associate entrepreneurial activity with higher income inequality.