Finance and Inequality: Theory and Evidence

Posted: 4 Jun 2010

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2009

Abstract

In this paper, we critically review the literature on finance and inequality, highlighting substantive gaps in the literature. Finance plays a crucial role in the preponderance of theories of persistent inequality. Unsurprisingly, therefore, economic theory provides a rich set of predictions concerning both the impact of finance on inequality and about the relevant mechanisms. While subject to ample qualifications, the bulk of empirical research suggests that improvements in financial contracts, markets, and intermediaries expand economic opportunities and reduce inequality. Yet, there is a shortage of theoretical and empirical research on the potentially enormous impact of formal financial sector policies, such as bank regulations and securities law, on persistent inequality. Furthermore, we lack a conceptual framework for considering the joint and endogenous evolution of finance, inequality, and economic growth.

Suggested Citation

Demirgüç-Kunt, Asli and Levine, Ross Eric, Finance and Inequality: Theory and Evidence (December 2009). Annual Review of Financial Economics, Vol. 1, pp. 287-318, 2009. Available at SSRN: https://ssrn.com/abstract=1599425 or http://dx.doi.org/10.1146/annurev.financial.050808.114334

Asli Demirgüç-Kunt (Contact Author)

World Bank - Development Research Group ( email )

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HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

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Ross Eric Levine

University of California, Berkeley - Haas School of Business ( email )

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National Bureau of Economic Research (NBER)

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