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Does Finance Alter The Relation Between Inequality And Growth?

Author

Listed:
  • Matías Braun
  • Francisco Parro
  • Patricio Valenzuela

Abstract

This paper introduces a model in which greater inequality reduces growth in economies with low levels of financial development but that this effect is attenuated in economies with more developed systems. The model also predicts that individuals in economies with developed financial markets have a higher tolerance to inequality. Using a panel dataset that covers a large number of countries, this paper shows empirical evidence that is consistent with the main predictions of the model. Overall, this paper's major findings highlight that some of the pernicious effects of inequality can be attenuated by improving access to credit. (JEL D3, E6, P1, O4, I2)

Suggested Citation

  • Matías Braun & Francisco Parro & Patricio Valenzuela, 2019. "Does Finance Alter The Relation Between Inequality And Growth?," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 410-428, January.
  • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:1:p:410-428
    DOI: 10.1111/ecin.12581
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    File URL: https://doi.org/10.1111/ecin.12581
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • P1 - Economic Systems - - Capitalist Systems
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • I2 - Health, Education, and Welfare - - Education

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