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U.S. Banking Deregulation, Small Businesses,and Interstate Insurance of Personal Income

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  • Bent E. Sørensen

    ()
    (Department of Economics, University of Houston)

  • Yuliya Demyanyk

    ()
    (Department of Economics, University of Houston)

  • Charlotte Ostergaard

    (Norwegian School of Management and Norges Bank)

Abstract

We estimate the effects of deregulation of U.S. banking restrictions on the amount of interstate personal income insurance during the period 1970–2001. Interstate income insurance occurs when personal income reacts less than one-to-one to state-specific shocks to output. We find that income insurance improved after banking deregulation, and that this effect is larger in states where small businesses are more important. We further show that the impact of deregulation is stronger for proprietors’ income than other components of personal income. Our explanation of this result centers on the role of banks as a prime source of small business finance and on the close intertwining of the personal and business finances of small business owners. Our analysis casts light on the real effects of bank deregulation, on the insurance function of banks, and on the integration of bank markets.

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Bibliographic Info

Paper provided by Department of Economics, University of Houston in its series Working Papers with number 2005-02.

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Length: 54 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:hou:wpaper:2005-02

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Postal: Houston TX 77023
Web page: http://www.uh.edu/class/economics/
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Keywords: Financial deregulation; integration of bank markets; interstate risk shar-ing; small business finance.;

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