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Financial development and inequality: Brazil 1985–1994

  • Manoel Bittencourt


We examine the impact of financial development on earnings inequality in Brazil in the 1980s and first half of the 1990s. The evidence - based on panel time-series data and analysis - shows that financial development had a significant and robust effect in reducing inequality during the period. We suggest that this is not only because the poorer can invest the acquired credit in either short or long-term productive activities, but also because those with access to financial markets can insulate themselves, via a process of financial adaptation, against recurrent poor macroeconomic performance, which is exemplified in Brazil by high rates of inflation. The main implication of the results is that a deeper and more active financial sector alleviates the high inequality seen in Brazil without the need for distortionary taxation.

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Article provided by Springer in its journal Economic Change and Restructuring.

Volume (Year): 43 (2010)
Issue (Month): 2 (May)
Pages: 113-130

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Handle: RePEc:kap:ecopln:v:43:y:2010:i:2:p:113-130
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