There is a consensus among researchers that one of the most important effects of the recent
economic downturn that started in 2009—also known as the Great Recession—in Spain has been
rising income inequality. In this context, researchers are concerned about the effects of inequality
on the economy, and this concern is even more marked now, when the world is facing a new crisis
that seems the equal of, or even more devastating than the last Great Recession as a consequence
of Covid-19. Nevertheless, there is a lack of studies which consider the effects of inequality on
entrepreneurship. This paper aims to contribute to a deeper understanding of the relationship
between inequality and entrepreneurship in the context of an economic downturn. We focus on the
17 autonomous communities in Spain during the Great Recession (2007–2013). Using unbalanced
panel data, we study the effect on entrepreneurial activity, differentiating between total, necessity- and
opportunity-driven entrepreneurship. The contribution of this paper is twofold. First, our results offer
new empirical evidence concerning the relationship between growing inequality and entrepreneurial
activity, showing significant differences from results in the existing literature. Second, we explain
how, in a recessionary context of highly restricted financial resources, inequality can negatively affect
total, necessity- and opportunity-based entrepreneurship, preventing a large part of the population
from engaging in this activity.