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The Effects of Financial Development on Income Inequality and Poverty

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Abstract

This paper examines the effects of financial development on income inequality and poverty. The results of both cross-country and panel data regressions suggest that inequality and poverty are reduced not only through enhanced loan markets, but also through more developed stock markets. We show that ethnic diversity and the distribution of land are significant and robust determinants of both income inequality and poverty. Finally, we find evidence that government spending leads to a reduction in income inequality in high income countries. In low income countries, however, we find no significant effect.

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  • Vivien Kappel, 2010. "The Effects of Financial Development on Income Inequality and Poverty," CER-ETH Economics working paper series 10/127, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:10-127
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    3. repec:eee:poleco:v:50:y:2017:i:c:p:171-195 is not listed on IDEAS
    4. Pierluigi Murro & Valentina Peruzzi, 2018. "Cooperative banks and income inequality: Evidence from Italian provinces," Working Papers CASMEF 1804, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    5. Tchamyou, Vanessa S. & Erreygers, Guido & Cassimon, Danny, 2019. "Inequality, ICT and financial access in Africa," Technological Forecasting and Social Change, Elsevier, vol. 139(C), pages 169-184.
    6. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
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    8. Sebastian Jauch & Sebastian Watzka, 2016. "Financial development and income inequality: a panel data approach," Empirical Economics, Springer, vol. 51(1), pages 291-314, August.
    9. Meniago, Christelle & Asongu, Simplice A., 2018. "Revisiting the finance-inequality nexus in a panel of African countries," Research in International Business and Finance, Elsevier, vol. 46(C), pages 399-419.
    10. Muhammad Shahbaz & Faridul Islam, 2011. "Financial Development And Income Inequality In Pakistan: An Application Of Ardl Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(1), pages 35-58, March.
    11. Kaidi Nasreddine & Sami Mensi, 2016. "Financial Development and Income Inequality: The Linear versus the Nonlinear Hypothesis," Economics Bulletin, AccessEcon, vol. 36(2), pages 609-626.
    12. Muhammad Shahbaz & Talat Afza & Muhammad Shahbaz Shabbir, 2013. "Financial Development, Domestic Savings and Poverty Reduction in Pakistan: Using Cointegration and Granger Causality Analysis," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(5), pages 59-73, May.
    13. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.
    14. Muhammad Shahbaz, 2013. "Financial Development, Economics Growth, Income Inequality Nexus: A Case Study of Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(3), pages 24-47, March.
    15. Nauro F. Campos & Paul De Grauwe & Yuemei Ji, 2017. "Structural Reforms, Growth and Inequality: An Overview of Theory, Measurement and Evidence," CESifo Working Paper Series 6812, CESifo Group Munich.
    16. Putra Pamungkas & Clovis Rugemintwari & Amine Tarazi & Irwan Trinugroho, 2016. "Bank Lending and Income Inequality: Evidence from Indonesia," Working Papers hal-01251500, HAL.
    17. repec:eee:ecmode:v:70:y:2018:i:c:p:40-55 is not listed on IDEAS

    More about this item

    Keywords

    Financial development; inequality; poverty;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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