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 period of 2006–2012, 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.
Highlights
IntroductionBecause development encompasses more than only economic growth (Sen, 2001), Naude (2011, p. 34) claims that entrepreneurship scholars should focus on other relevant issues (e.g., income inequality)
Based on panel data obtained from 54 countries during the period of 2006–2012, this empirical study found that public policies targeting formal and informal entrepreneurs are associated with decreased inequalities in the distribution of income
Because development encompasses more than only economic growth (Sen, 2001), Naude (2011, p. 34) claims that entrepreneurship scholars should focus on other relevant issues
Summary
Because development encompasses more than only economic growth (Sen, 2001), Naude (2011, p. 34) claims that entrepreneurship scholars should focus on other relevant issues (e.g., income inequality). Because development encompasses more than only economic growth (Sen, 2001), Naude 34) claims that entrepreneurship scholars should focus on other relevant issues (e.g., income inequality). This study contributes to bridging the empirical gap between income inequality and entrepreneurship. Income inequality is relevant because increasing inequality harms the poor and adversely affects the middle class (Winkelmann & Winkelmann, 2010), whereas entrepreneurship, vital to economic growth Understanding inequality from the entrepreneurship point of view is very important because strong evidence suggests that income inequality slows economic growth. This paper enhances our understanding of the origins of income inequality by investigating the extent to which entrepreneurial activity is a determining factor. Following Naude (2010), the guiding research questions are as follows: how much of the observed income inequality is due to entrepreneurship, and when is entrepreneurship consistent with a reduction in inequalities?
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