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.