High-net-worth individuals, private capital and inequality

Title: High-net-worth individuals, private capital and inequality

Abstract: This paper studies the interplay between the rise in private capital and the rise in income inequality over the last two decades in the US. Using novel data sources, we first document that high-net-worth individuals (HNWI) have increased its importance in private capital markets mainly through venture investments. We then exploit state-level variation in the exposure to capital gains tax reforms and find that the increasing participation of HNWI in private capital markets has led to higher income concentration. Finally, we show that the rise in income inequality is mainly driven by higher capital gains on private investments at the  top.