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Discussion Paper Details

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Title: Financial structure and income inequality

Author(s): Michael Brei, Giovanni Ferri and Leonardo Gambacorta

Publication Date: November 2018

Keyword(s): banks, Finance, financial markets and inequality

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Brei, M, Ferri, G and Gambacorta, L. 2018. 'Financial structure and income inequality'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13330