Does Financial Development Affect Income Inequality in the U.S. States? A Panel Data Analysis

27 Pages Posted: 23 Jul 2019

See all articles by Manoel Bittencourt

Manoel Bittencourt

University of the Witwatersrand; Economic Research Southern Africa (ERSA)

Shinhye Chang

Univeristy of Pretoria

Rangan Gupta

University of Pretoria - Department of Economics

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: July 22, 2019

Abstract

This paper examines the role of financial development on U.S. state-level income inequality in the 50 states from 1976 to 2011, using fixed-effect estimation. We find robust results whereby financial development linearly increases income inequality for the 50 states. When we divide 50 states into two separate groups of above-average and below-average inequality states than the cross-state average inequality, the effect of financial development on income inequality appears non-linear. When financial development improves, the effect increases at an increasing rate for above-average income-inequality states, whereas an inverted U-shaped relationship exists for below-average income-inequality states. To our knowledge, this paper is the first to examine the role of financial development on U.S. state-level inequality.

Keywords: Income inequality, Panel data, Personal Income

JEL Classification: C33, D31, D63

Suggested Citation

Bittencourt, Manoel and Chang, Shinhye and Gupta, Rangan and Miller, Stephen M., Does Financial Development Affect Income Inequality in the U.S. States? A Panel Data Analysis (July 22, 2019). Available at SSRN: https://ssrn.com/abstract=3424190 or http://dx.doi.org/10.2139/ssrn.3424190

Manoel Bittencourt

University of the Witwatersrand ( email )

1 Jan Smuts Avenue
Johannesburg, GA Gauteng 2000
South Africa

Economic Research Southern Africa (ERSA) ( email )

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Cape Town, Claremont 7700
South Africa

Shinhye Chang

Univeristy of Pretoria ( email )

Pretoria, Gauteng
South Africa

Rangan Gupta

University of Pretoria - Department of Economics ( email )

South Africa

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

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Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

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Storrs, CT 06269-1063
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