Finance, Distribution and the Economic Objective of Financial Cooperative Institutions
25 Pages Posted: 28 Apr 2020
Date Written: September 2019
Abstract
This paper proposes a model where the structure rather than the size of the financial sector explains its influence on income distribution. Because of information asymmetries, a financial sector dominated solely by profit‐maximizing financial intermediaries will increase income and wealth inequality as it gives preferential access to credit for high‐income agents, whereas a diversified inclusive financial sector with alternative models of finance, like cooperatives, will reduce the inequality gap. No full convergence in income distribution can be realized through finance only and there is still a need for redistribution policies. Accordingly, an objective function for cooperative financial institutions should define a desired pricing behaviour that can increase the income of members at a rate higher than the average growth rate of the economy.
Keywords: Income inequality, financialization, financial cooperatives
JEL Classification: D63, E44, G2, O1, P13
Suggested Citation: Suggested Citation