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This paper shows that rising income inequality reduces job creation at small firms. High-income households save relatively less in the form of bank deposits while small firms depend on banks. We argue that a higher share of income accruing to top earners therefore erodes banks’ deposit base and their lending capacity for small businesses, thus reducing job creation.

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Income inequality, financial intermediation, and small firms

This paper shows that rising income inequality reduces job creation at small firms. High-income households save relatively less in the form of bank deposits