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Financial Development and Inequality: Brazil 1985-99

  • Manoel F. Meyer Bittencourt

    ()

    (University of Bristol, Department of Economics)

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 non-distortionary 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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File URL: http://www.ecineq.org/milano/WP/ECINEQ2006-26.pdf
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Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 26.

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Length: 25 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2006-26
Contact details of provider: Web page: http://www.ecineq.org
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  18. repec:oup:restud:v:60:y:1993:i:1:p:35-52 is not listed on IDEAS
  19. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
  20. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
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