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Financial Sector Policies, Poverty and Inequality

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  • Johansson, Anders C.

    ()
    (China Economic Research Center)

  • Wang, Xun

    ()
    (China Economic Research Center)

Abstract

While finance has been shown to influence the distribution of income, little research has been devoted to the potential impact of financial sector policies on inequality. This study analyzes the relationship between financial repression and inequality across countries and across China's provinces. Using several alternative estimation procedures including fixed effect, dynamic panel and instrumental variable regressions, we find that financial repression is positively associated with inequality across countries. Moreover, we find that this relationship is stronger in less developed economies and that interest rate controls, capital account controls, poor banking supervision and a concentrated banking sector are the most important financial policies influencing inequality. Furthermore, financial repression is associated with a higher fraction of the population living in poverty. Focusing on China, financial repression again acts as a driver for inequality and its effect is stronger in less developed provinces. These results have important policy implications, not the least so for China, where rising inequality poses a significant problem for the government.

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Bibliographic Info

Paper provided by China Economic Research Center, Stockholm School of Economics in its series Working Paper Series with number 2012-24.

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Length: 36 pages
Date of creation: 20 Sep 2012
Date of revision:
Handle: RePEc:hhs:hacerc:2012-024

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Postal: China, Economic Research Center, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-8-736 90 00
Fax: +46-8-31 81 86
Web page: http://www.hhs.se/CERC/
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Keywords: Income distribution; Poverty; Financial repression; Capital markets; China;

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