Discussion paper

DP13330 Financial structure and income inequality

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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Citation

Brei, M and L Gambacorta (2018), ‘DP13330 Financial structure and income inequality‘, CEPR Discussion Paper No. 13330. CEPR Press, Paris & London. https://cepr.org/publications/dp13330