PhD Seminar - Emma Scandolo (UCL)

Abstract: This paper presents preliminary findings on the growing participation of high-net-worth individuals (HNWIs) in private capital markets and its role in explaining increasing inequality. First, using data purchased from PitchBook, we document the growth since 2008 in investments by HNWIs in private equity and especially venture capital deals, both in absolute terms and relative to the total size of these deals. Second, focusing on the United States, we show that the growth in HNWIs' venture capital investments was partially driven by new federal tax incentives for millionaires to invest in startup companies: the more millionaires residing in a state in 2008, the greater the percent increase in venture capital investments by its resident HNWIs after the tax reforms. Finally, based on this same state-level difference-in-differences strategy, we show that the reforms appear to have increased income inequality, driven by an increase in capital gains income for the top 0.1% of earners. Given venture capital returns that exceed public stock market returns, this increase in inequality is consistent with the reforms' positive effects on venture capital investments by HNWIs.

Location: 321 Drayton House