Entrepreneurship, wealth accumulation and borrowing constraints: Foreign research experience

Abstract

This paper presents a review of foreign studies analyzing the role of entrepreneurs in the accumulation and distribution of wealth and approaches to modeling entrepreneurship as an integral part of the economy 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 survey 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. 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 counterfactual experiments to evaluate the effects of various types of tax reforms and financial shocks in models with entrepreneurs are reviewed. The possibility of constructing a similar model for the Russian economy is discussed.