Financial Structure and Income Inequality

39 Pages Posted: 7 Jan 2019

See all articles by Michael Brei

Michael Brei

Université Paris Ouest - Nanterre, La Défense - EconomiX

Giovanni Ferri

LUMSA University

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 15, 2018

Abstract

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

Suggested Citation

Brei, Michael and Ferri, Giovanni and Gambacorta, Leonardo, Financial Structure and Income Inequality (November 15, 2018). BIS Working Paper No. 756. Available at SSRN: https://ssrn.com/abstract=3302308

Michael Brei (Contact Author)

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

Giovanni Ferri

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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