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Bank Regulations and Income Inequality: Empirical Evidence

49 Pages Posted: 6 Jul 2012  

Manthos D. Delis

Montpellier Business School

Iftekhar Hasan

Gabelli School of Business, Fordham University; Bank of Finland

Pantelis Kazakis

University of Economics, Prague

Date Written: April 20, 2012

Abstract

This paper provides cross-country evidence that variations in bank regulatory policies result in differences in income distribution. In particular, the overall liberalization of banking systems decreases the Gini coefficient and the Theil index significantly. However, this effect fades away for countries with low levels of economic and institutional development and for market-based economies. Among the different liberalization policies, the most significant negative effect on inequality is that of credit controls, which also seem to have a lasting effect on the Gini coefficient. Banking supervision and the abolition of interest rate controls also have a negative yet short-run impact on income inequality. A notable finding is that liberalization of securities markets increases income inequality substantially and over a long time span, suggesting that securitization widens the distribution of income. We contend that these findings have new implications for the effects of bank regulations, besides those related to their impact on financial stability.

Keywords: bank regulations, income inequality, cross-country panel data, instrumental variables, panel VAR

JEL Classification: G28, O15, O16

Suggested Citation

Delis, Manthos D. and Hasan, Iftekhar and Kazakis, Pantelis, Bank Regulations and Income Inequality: Empirical Evidence (April 20, 2012). Bank of Finland Research Discussion Paper No. 18/2012. Available at SSRN: https://ssrn.com/abstract=2100335 or http://dx.doi.org/10.2139/ssrn.2100335

Manthos D. Delis

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Iftekhar Hasan (Contact Author)

Gabelli School of Business, Fordham University ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Pantelis Kazakis

University of Economics, Prague ( email )

nam. W.Churchilla 4
Prague 3, 130 67
Czech Republic

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