DP13330 Financial structure and income inequality
|Author(s):||Michael Brei, Giovanni Ferri, Leonardo Gambacorta|
|Publication Date:||November 2018|
|Keyword(s):||banks, Finance, financial markets, inequality|
|JEL(s):||D63, G10, G21, O15|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13330|
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.