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Does financial development affect income inequality in the U.S. States?

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  • Bittencourt, Manoel
  • Chang, Shinhye
  • Gupta, Rangan
  • Miller, Stephen M.

Abstract

This paper examines the role of financial development on U.S. state-level income inequality in the 50 states from 1976 to 2011, using fixed-effect estimation. We find robust results whereby financial development linearly increases income inequality for the 50 states. When we divide 50 states into two separate groups of above-average and below-average inequality states than the cross-state average inequality, the effect of financial development on income inequality appears non-linear. When financial development improves, the effect increases at an increasing rate for above-average income-inequality states, whereas an inverted U-shaped relationship exists for below-average income-inequality states. To our knowledge, this paper is the first to examine the role of financial development on U.S. state-level inequality.

Suggested Citation

  • Bittencourt, Manoel & Chang, Shinhye & Gupta, Rangan & Miller, Stephen M., 2019. "Does financial development affect income inequality in the U.S. States?," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1043-1056.
    • Handle: RePEc:eee:jpolmo:v:41:y:2019:i:6:p:1043-1056
    DOI: 10.1016/j.jpolmod.2019.07.008
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    More about this item

    Keywords

    Income inequality; Panel data; Personal income;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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