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ABSTRACT
This study examines the causal relationships between inequality, poverty and entrepreneurship. We hypothesize that income inequality influences entrepreneurial activity, and entrepreneurial activity alleviates absolute poverty. Findings from longitudinal analyses of a dataset from all 50 US states over an 18-year period provide robust support for these hypotheses. Furthermore, the results suggest that antipoverty public policy aimed at encouraging work (i.e. Earned income tax credit, EITC) can be detrimental to entrepreneurial activity. These findings underscore the importance of linking public policy efforts aimed at poverty alleviation with those aimed at encouraging additional entrepreneurship.
Acknowledgments
All authors contributed equally to this research. We owe thanks to the Editors Steven Si, David Ahlstrom, John Cullen, and Jiang Wei, as well as three anonymous reviewers, for very helpful comments and suggestions. Also, we owe thanks to the seminar participants at the Academy of Management, British Academy of Management, Strategic Management Society, and the Law and Entrepreneurship Retreat at the University of Alabama. Douglas Cumming and Sofia Johan owe thanks to the Social Sciences and Humanities Research Council of Canada for Financial Support. The authors also thank the University of Kentucky Poverty Research Center for access to some of the data used in this research.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. We thank a reviewer for highlighting this important rationale.
2. Though we argue that entrepreneurial activity alleviates absolute poverty, we do not, a priori, assume that entrepreneurial activity can directly influence inequality. Indeed, it may be far-fetched to assume that entrepreneurs are capable of directly redistributing wealth in free-market societies.