ÌÇÐÄÖ±²¥

Abstract

This paper studies the relationship between the growth in private capital markets and the rise in economic inequalities over the last two decades in the U.S. First, we document that the share of financing raised by early-stage companies from U.S. high-net-worth individuals (HNWIs) tripled from 2004 to 2022. Second, exploiting both company- and state-level variation in exposure to the expanded federal capital gains tax exclusion on qualified small business stock (QSBS), we find that QSBS-eligible companies’ probability of staying private increased by 3.6 percentage points, and that the average income gap between HNWIs and other income earners increased by 7.2%. Third, we show that this rise in income concentration appears to have been driven by HNWIs’ excess returns on their early-stage investments relative to public stock market returns. Finally, using counterfactual simulations, we find that HNWIs’ excess returns on these investments accounted for 28% of the growth in the top 0.5% wealth share between 2010 and 2022.