Entrepreneurship, wealth accumulation and borrowing constraints: Foreign research experience

Abstract

This paper presents a review of foreign studies analyzing the role of the business sector in the accumulation and distribution of wealth and related approaches to modeling entrepreneurship as an integral part of the economic system for evaluating the consequences of alternative economic policies. According to the main results of the empirical literature, entrepreneurs, first, own a substantial share of total household wealth, and many of the wealthiest people are entrepreneurs. Second, entrepreneurs have higher saving rates than other households, and, third, entrepreneurs face restrictions on borrowing. We analyze dynamic general equilibrium models based on stylized facts about the behavior of entrepreneurs, where agents can choose the type of activity between entrepreneurship and wage labor. Their build-in mechanisms of encouraging entrepreneurial savings due to borrowing constraints, financial intermediation costs, and uninsured entrepreneurial risk allow calibrated versions of these models to successfully replicate the observed distribution of household wealth. Results of application of general equilibrium models with an entrepreneurial sector to assess the consequences of various types of tax reforms and financial shocks are discussed.