Entrepreneurs, Sudden Stops, and Inequality

59 Pages Posted: 25 Jan 2022


This paper quantifies the importance of heterogeneity across entrepreneurs in accounting for aggregate and distributional dynamics during sudden stops. Using Argentinian household survey data from 1996 and 2003, I establish that the income distribution of entrepreneurs widened relative to that of workers. Motivated by this, I develop a small open-economy, heterogeneous-agent model with occupational choice in which households endogenously select into being a worker, a self-employed entrepreneur, and an employer entrepreneur. The model rationalizes aggregate and distributional features of sudden stops that standard models cannot. The model shows that a tax on assets and capital reduces the probability of a sudden stop, reduces long-run welfare, and dampens the relative widening of the income distributions by disincentivizing entrepreneurship.

Keywords: Sudden stops, Small open economy, Entrepreneurs, Financial crisis

Suggested Citation

Kim, Hanjo Terry, Entrepreneurs, Sudden Stops, and Inequality. Available at SSRN: https://ssrn.com/abstract=4017196 or http://dx.doi.org/10.2139/ssrn.4017196

Hanjo Terry Kim (Contact Author)

Vanderbilt University ( email )

2301 Vanderbilt Place
Nashville, TN 37240
United States

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