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Financial Development and Inequality: Brazil 1985-99

  • Manoel F. Meyer Bittencourt

    ()

We examine the impact that financial development had on earnings inequality in Brazil in the 1980's and 90's. The empirical evidence, based on panel time series and time series data, shows that more broad access to financial and credit markets had a significant and robust effect in reducing inequality during the period investigated. We suggest that this is not only because the poor can invest the acquired credit in all sorts of productive activities, but also because those with access to financial markets can insulate themselves against recurrent poor macroeconomic performance, which is exemplified by high inflation rates. The main implication of the results is that a seemingly nondistortionary policy, such as more credit aimed at the poor, alleviates the extreme inequality present in Brazil and consequently improves welfare without distorting economic efficiency.

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Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 06/582.

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Length: 25 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:bri:uobdis:06/582
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