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The Matthew effect and modern finance: on the nexus between wealth inequality, financial development and financial technology

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  • Jon Frost
  • Leonardo Gambacorta
  • Romina Gambacorta

Abstract

This paper analyses the role of financial development and financial technology in driving inequality in (returns to) wealth. Using micro data from the Survey on Household Income and Wealth (SHIW) conducted by the Bank of Italy for the period 1991-2016, we find evidence of the "Matthew effect" - a capacity of wealthy households to achieve higher returns than other households. With an instrumental variable approach, we find that financial development (number of bank branches) and financial technology (use of remote banking) both have a positive association with households' financial wealth and financial returns. While households of all wealth deciles benefit from the effects of financial development and financial technology, these benefits are larger when moving towards the top of the wealth distribution. Still, the economic significance of this gap fell in the last part of the sample period, as remote banking became more widespread.

Suggested Citation

  • Jon Frost & Leonardo Gambacorta & Romina Gambacorta, 2020. "The Matthew effect and modern finance: on the nexus between wealth inequality, financial development and financial technology," BIS Working Papers 871, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:871
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    1. Feichtinger, Gustav & Grass, Dieter & Kort, Peter M. & Seidl, Andrea, 2021. "On the Matthew effect in research careers," Journal of Economic Dynamics and Control, Elsevier, vol. 123(C).
    2. Brei, Michael & Ferri, Giovanni & Gambacorta, Leonardo, 2023. "Financial structure and income inequality," Journal of International Money and Finance, Elsevier, vol. 131(C).
    3. Tut, Daniel, 2023. "FinTech and the COVID-19 pandemic: Evidence from electronic payment systems," Emerging Markets Review, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    inequality; financial development; banks; financial technology; fintech;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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