Financial Structure and Income Inequality
39 Pages Posted: 7 Jan 2019
Date Written: November 15, 2018
This paper empirically investigates the link between financial structure and income inequality. Using data for a panel of 97 economies over the period 1989-2012, we find that the relationship is not monotonic. Up to a point, more finance reduces income inequality. Beyond that point, inequality rises if finance is expanded via market-based financing, while it does not when finance grows via bank lending. These findings concur with a well-established literature indicating that deeper financial systems help reduce poverty and inequality in developing countries, but also with recent evidence of rising inequality in various financially advanced economies.
Keywords: inequality, finance, banks, financial markets
JEL Classification: G10, G21, O15, D63
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