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Financial Development and Income Inequality: A Panel Data Approach

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  • Sebastian Jauch
  • Sebastian Watzka

Abstract

We analyze the link between financial development and income inequality for a broad unbalanced dataset of up to 138 developed and developing countries over the years 1960 to 2008. Using credit-to-GDP as a measure of financial development, our results reject theoretical models predicting a negative impact of financial development on income inequality measured by the Gini coefficient. Controlling for country fixed effects and GDP per capita, we find that financial development has a positive effect on income inequality. These results are robust to different measures of financial development, econometric specifications, and control variables.

Suggested Citation

  • Sebastian Jauch & Sebastian Watzka, 2011. "Financial Development and Income Inequality: A Panel Data Approach," CESifo Working Paper Series 3687, CESifo.
    • Handle: RePEc:ces:ceswps:_3687
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    References listed on IDEAS

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    More about this item

    Keywords

    financial development; income inequality; global; panel analysis;
    All these keywords.

    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

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