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Finance‐Inequality Nexus: The Long And The Short Of It

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  • Yousef Makhlouf
  • Neil M. Kellard
  • Dmitri V. Vinogradov

Abstract

Financial development affects income inequality differently in the short and in the long term. Investigating OECD countries from 1870–2011, we find in the short run, an improvement in financial development tends to reduce inequality, while in the long run, more finance contributes to more inequality. The short‐run effect concurs with theories advocating financial development increases the availability of financial services, primarily for the poor. However, this effect becomes nil within a few years. Results thus imply that policies aimed at reducing inequality through improving access of the poor to finance need to be carefully designed to ensure longevity of impact. (JEL O15, O16, D31, G20, E44)

Suggested Citation

  • Yousef Makhlouf & Neil M. Kellard & Dmitri V. Vinogradov, 2020. "Finance‐Inequality Nexus: The Long And The Short Of It," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1977-1994, October.
    • Handle: RePEc:bla:ecinqu:v:58:y:2020:i:4:p:1977-1994
    DOI: 10.1111/ecin.12918
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    More about this item

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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