Debt Shift, Financial Development and Income Inequality

39 Pages Posted: 15 Aug 2019

See all articles by Dirk Bezemer

Dirk Bezemer

University of Groningen

Anna SamarIna

De Nederlandsche Bank

Date Written: August 1, 2019


Does financial development increase income inequality? Ambiguous answers to this question may be due to over-aggregation of ‘financial development’. In a sample of 40 developed economies over 1990-2013, we study the effects on income inequality of different components of financial development. There was a shift in bank credit allocation, away from supporting investments by non-financial firms and towards financing real estate markets (‘debt shift’). In system-GMM estimations, we find that mortgage credit increases income inequality while credit to non-financial business reduces inequality. The effect of business credit is conditional on macroeconomic and labor market factors related to broader income formation, such as wage share, investment, trade openness, and labor force participation. House prices and the size of the real estate sector condition the impact of mortgage credit on income inequality.

Keywords: income inequality, financial development, debt shift

JEL Classification: E51, G21, I30

Suggested Citation

Bezemer, Dirk and SamarIna, Anna, Debt Shift, Financial Development and Income Inequality (August 1, 2019). De Nederlandsche Bank Working Paper No. 646, Available at SSRN: or

Dirk Bezemer

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV

Anna SamarIna (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB

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