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Economic literacy, inequality, and financial development

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  • Lo Prete, Anna

Abstract

Empirical studies of the link between finance and inequality document that across countries financial development is associated with lower and decreasing income inequality. This article uses an indicator of economic literacy as a proxy for the ability to reap the benefits of financial investment opportunities, and documents that such specific competences matter for the relationship between changes in inequality and financial development. As financial markets become more sophisticated, the ability to take advantage of new investment opportunities may help reduce inequality, and the empirical association between financial development and lower income inequality indeed appears to be driven by economic literacy.

Suggested Citation

  • Lo Prete, Anna, 2013. "Economic literacy, inequality, and financial development," Economics Letters, Elsevier, vol. 118(1), pages 74-76.
  • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:74-76 DOI: 10.1016/j.econlet.2012.09.029
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    References listed on IDEAS

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    1. Tullio Jappelli, 2010. "Economic Literacy: An International Comparison," Economic Journal, Royal Economic Society, vol. 120(548), pages 429-451, November.
    2. Georg R. G. Clarke & Lixin Colin Xu & Heng-fu Zou, 2006. "Finance and Income Inequality: What Do the Data Tell Us?," Southern Economic Journal, Southern Economic Association, vol. 72(3), pages 578-596, January.
    3. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, pages 449-472.
    4. Asli Demirgüç-Kunt & Ross Levine, 2009. "Finance and Inequality: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 287-318, November.
    5. Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, vol. 86(2), pages 218-223, May.
    6. Claessens, Stijn & Perotti, Enrico, 2007. "Finance and inequality: Channels and evidence," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 748-773, December.
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    Citations

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    Cited by:

    1. Fornero, Elsa & Lo Prete, Anna, 2017. "Voting in the Aftermath of a Pension Reform: The Role of Financial Literacy," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201723, University of Turin.
    2. Hamideh Mohtashami Borzadaran & Mehdi Behname & Sayed Mahdi Mostafavi, 2013. "Natural Resources, Openness and Income Inequality in Iran," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(49), pages 3-26, September.
    3. Yenner Altunbas & John Thornton & Chrysovalantis Vasilakis, 2015. "More foreign aid, less financial development," Working Papers 15007, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    4. Caliendo, Frank N. & Findley, T. Scott, 2013. "Time inconsistency and retirement planning," Economics Letters, Elsevier, vol. 121(1), pages 30-34.
    5. Giofré, Maela, 2017. "Financial education, investor protection and international portfolio diversification," Journal of International Money and Finance, Elsevier, pages 111-139.
    6. Bucher-Koenen, Tabea & Lamla, Bettina, 2014. "The long Shadow of Socialism: On East-West German Differences in Financial Literacy," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100585, Verein für Socialpolitik / German Economic Association.
    7. Schicks, Jessica, 2014. "Over-Indebtedness in Microfinance – An Empirical Analysis of Related Factors on the Borrower Level," World Development, Elsevier, vol. 54(C), pages 301-324.
    8. Anna Lo Prete, 2013. "Inequality and the finance you know: does economic literacy matter?," CeRP Working Papers 136, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    9. Paramonovs Sergejs & Ijevleva Ksenija, 2015. "The Role of Marketing Tools in the Improvement of Consumers Financial Literacy," Economics and Business, De Gruyter Open, vol. 27(1), pages 40-45, August.

    More about this item

    Keywords

    Inequality; Financial market participation; Economic competences;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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