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Financial development and income distribution inequality in the euro area

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  • Baiardi, Donatella
  • Morana, Claudio

Abstract

The paper yields new evidence on real income convergence for euro area (EA) countries since the mid-1980s, with a special focus on the effects of the subprime and sovereign debt financial crises. By conditioning the turning point per capita income of the Kuznets curve (KC) to the level of financial development, we find strong evidence in favor of an EA-wide steady-state financial KC and of ongoing convergence across EA members toward a common per capita income turning point level. By means of a counterfactual analysis, we also point to worsening economic and income inequality conditions for all the EA countries, only partially ensued from “austerity” policies. Hence, a well-functioning financial system and its smooth development appear to be instrumental not only to economic growth, but also to a more egalitarian income distribution.

Suggested Citation

  • Baiardi, Donatella & Morana, Claudio, 2018. "Financial development and income distribution inequality in the euro area," Economic Modelling, Elsevier, vol. 70(C), pages 40-55.
  • Handle: RePEc:eee:ecmode:v:70:y:2018:i:c:p:40-55
    DOI: 10.1016/j.econmod.2017.10.008
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    More about this item

    Keywords

    Euro area; Financial development; Financial stability; Income distribution inequality; Kuznets curve; Real convergence; Subprime mortgage and sovereign debt crisis;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • 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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