Finance and Income Inequality: A Review and New Evidence

43 Pages Posted: 9 Nov 2016

See all articles by Jakob de Haan

Jakob de Haan

University of Groningen - Faculty of Economics and Business; De Nederlandsche Bank; CESifo (Center for Economic Studies and Ifo Institute)

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2016

Abstract

Using a panel fixed effects model for a sample of 121 countries covering 1975-2005, we examine how financial development, financial liberalization and banking crises are related to income inequality. In contrast with most previous work, our results suggest that all finance variables increase income inequality. The level of financial development conditions the impact of financial liberalization on inequality. Also the quality of political institutions conditions the impact of financial liberalization on income inequality, in contrast to the quality of economic institutions. Our main findings are robust for using random effects, cross-country regressions and legal origin as instrument for financial development.

Keywords: income inequality, financial liberalization, financial sector size, financial crises, political institutions

JEL Classification: D31, D63, F02, O11, O15

Suggested Citation

de Haan, Jakob and Sturm, Jan-Egbert, Finance and Income Inequality: A Review and New Evidence (November 7, 2016). De Nederlandsche Bank Working Paper No. 530. Available at SSRN: https://ssrn.com/abstract=2866399 or http://dx.doi.org/10.2139/ssrn.2866399

Jakob de Haan (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

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