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Households’ Exposure to the Financial Sector as a Driver of Inequality: An Analysis of Advanced and Emerging Economies

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  • Sofia Vale

    (Instituto Universitário de Lisboa (ISCTE-IUL), Business Research Unit (BRU-IUL))

  • Francisco Camões

    (Instituto Universitário de Lisboa (ISCTE-IUL), Business Research Unit (BRU-IUL))

Abstract

Inequality in income distribution has increased in recent decades while households have seen their relationship with the financial sector deepen, raising the question of whether there is a causal relationship between the two phenomena. This paper studies how changes in house prices, private credit, and stock market capitalization affect income inequality. Dynamic panel data methods are used on an unbalanced panel of 57 advanced and emerging economies between 1998 and 2018. The results point to a positive impact of an increase in these variables on both the Gini coefficient of disposable income and the share of top incomes. Overall, the evidence indicates that the development of the financial sector and its consequent extension to households has been a driver of income inequality. The results are robust to different measures of house prices, different econometric specifications, and control variables.

Suggested Citation

  • Sofia Vale & Francisco Camões, 2023. "Households’ Exposure to the Financial Sector as a Driver of Inequality: An Analysis of Advanced and Emerging Economies," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(2), pages 362-402, June.
  • Handle: RePEc:pal:compes:v:65:y:2023:i:2:d:10.1057_s41294-022-00200-8
    DOI: 10.1057/s41294-022-00200-8
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    More about this item

    Keywords

    Inequality; Households; House prices; Private credit; Stock market capitalization;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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