This paper studies how wealth inequality is shaped by frictions in debt and equity markets. Using micro data on households and firms for a set of Eurozone countries, I document that in countries with greater wealth inequality, there are more privately held firms and ownership of publicly traded firms is more concentrated. I develop a dynamic general equilibrium model in which entrepreneurs have the option to run a private firm and issue debt, or go public and also issue outside equity. Both forms of external finance are subject to country-specific frictions. More access to debt increases output as well as inequality. More access to outside equity also increases output, but reduces inequality. When parameters are chosen to match the facts I document on firm ownership and financing, the model predicts differences in wealth concentration across countries that closely fit the data. Quantitatively, I find that frictions in equity markets are the key driver of these differences in inequality -- they are nearly six times as important as frictions in debt markets.

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