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Finance and income inequality: A review and new evidence

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Abstract

Using a panel fixed effects model for a sample of 121 countries covering 1975?2005, we examine how financial development, financial liberalization and banking crises are related to income inequality. In contrast with most previous work, our results suggest that all finance variables increase income inequality. The level of financial development conditions the impact of financial liberalization on inequality. Also the quality of political institutions conditions the impact of financial liberalization on income inequality, in contrast to the quality of economic institutions. Our main findings are robust for using random effects, cross?country regressions and legal origin as instrument for financial development.

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  • Jakob de Haan & Jan-Egbert Sturm, 2016. "Finance and income inequality: A review and new evidence," KOF Working papers 16-410, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:16-410
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    File URL: http://dx.doi.org/10.3929/ethz-a-010706109
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    1. repec:eee:jimfin:v:85:y:2018:i:c:p:278-290 is not listed on IDEAS
    2. Emmanuel Carré & Guillaume L’Œillet, 2017. "Une revue de la littérature récente sur le nexus finance-croissance après la crise : apports, limites et pistes de recherche," Revue d'économie financière, Association d'économie financière, vol. 0(3), pages 271-290.
    3. Jakob de Haan & Jan-Egbert Sturm, 2016. "How Development and Liberalisation of the Financial Sector is Related to Income Inequality: Some New Evidence," BAFFI CAREFIN Working Papers 1633, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Christelle Meniago & Simplice Asongu, 2018. "Revisiting the Finance-Inequality Nexus in a Panel of African Countries," Working Papers 18/014, African Governance and Development Institute..
    5. Pham, Ngoc-Sang, 2018. "Credit limits and heterogeneity in general equilibrium models with a finite number of agents," MPRA Paper 88736, University Library of Munich, Germany.
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    8. Florian Dorn & Christoph Schinke, 2018. "Top Income Shares in OECD Countries: The Role of Government Ideology and Globalization," ifo Working Paper Series 246, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    9. Christina Christou & Rangan Gupta & Fredj Jawadi, 2017. "Does Inequality Help in Forecasting Equity Premium in a Panel of G7 Countries?," Working Papers 201720, University of Pretoria, Department of Economics.
    10. repec:agr:journl:v:xxiv:y:2017:i:2(611):p:61-74 is not listed on IDEAS
    11. 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.
    12. Frost, Jon & van Stralen, René, 2018. "Macroprudential policy and income inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 278-290.
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    14. Haffejee, muhammad Ismail & Masih, Mansur, 2018. "Is the relationship between financial development and income inequality symmetric or asymmetric ? new evidence from South Africa based on NARDL," MPRA Paper 87574, University Library of Munich, Germany.

    More about this item

    Keywords

    Income inequality; Financial liberalization; Financial sector size; Financial crises; Political institutions;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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