« 'Back to the Nineteenth Century' | Main | Links for 02-12-15 »

Wednesday, February 11, 2015

'The Long-Term Impact of Inequality on Entrepreneurship and Job Creation'

Via Chris Dillow, a new paper on inequality and economic growth:

The Long-Term Impact of Inequality on Entrepreneurship and Job Creation, by Roxana Gutiérrez-Romero and Luciana Méndez-Errico: Abstract We assess the extent to which historical levels of inequality affect the likelihood of businesses being created, surviving and of these cr eating jobs overtime. To this end, we build a pseudo-panel of entrepreneurs across 48 countries using the Global Entrepreneurship Monitor Survey over 2001-2009. We complement this pseudo-panel with historical data of income distribution and indicators of current business regulation. We find that in countries with higher levels of inequality in the 1700s and 1800s, businesses today are more likely to die young and create fewer jobs. Our evidence supports economic theories that argue initial wealth distribution influences countries’ development path, having therefore important policy implications for wealth redistribution.

Chris argues through a series of examples that such long-term effects are reasonable (things in the 1700s and 1800s mattering today), and then concludes with:

... All this suggests that, contrary to simple-minded neoclassical economics and Randian libertarianism, individuals are not and cannot be self-made men. We are instead creations of history. History is not simply a list of the misdeeds of irrelevant has-beens; it is a story of how we were made. Burke was right: society is "a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."
One radical implication of all this is Herbert Simon's:
When we compare the poorest with the richest nations, it is hard to conclude that social capital can produce less than about 90 percent of income in wealthy societies like those of the United States or Northwestern Europe. On moral grounds, then, we could argue for a flat income tax of 90 percent to return that wealth to its real owners.

I find myself skeptical of such long-term effects, but maybe...

    Posted by on Wednesday, February 11, 2015 at 11:21 AM in Academic Papers, Economics, Income Distribution | Permalink  Comments (26)


    Feed You can follow this conversation by subscribing to the comment feed for this post.