Financial Development and Income Inequality

38 Pages Posted: 11 Jan 2012

See all articles by Sebastian Jauch

Sebastian Jauch

Ludwig Maximilian University of Munich (LMU)

Sebastian Watzka

Ludwig Maximilian University of Munich (LMU)

Date Written: December 30, 2011

Abstract

We analyze the link between financial development and income inequality for a broad unbalanced dataset of up to 138 developed and developing countries over the years 1960 to 2008. Using credit-to-GDP as a measure of financial development, our results reject theoretical models predicting a negative impact of financial development on income inequality measured by the Gini coefficient. Controlling for country fixed effects and GDP per capita, we find that financial development has a positive effect on income inequality. These results are robust to different measures of financial development, econometric specifications, and control variables.

Keywords: financial development, income inequality

JEL Classification: O150, O160

Suggested Citation

Jauch, Sebastian and Watzka, Sebastian, Financial Development and Income Inequality (December 30, 2011). CESifo Working Paper Series No. 3687. Available at SSRN: https://ssrn.com/abstract=1983159

Sebastian Jauch

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Ludwigstrasse 28
Munich, Bavaria 80539
Germany

Sebastian Watzka (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

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