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Finance and income inequality in OECD countries

Author

Listed:
  • Oliver Denk

    (OECD)

  • Boris Cournède

    (OECD)

Abstract

Using data from OECD countries over the past three decades, this paper shows that financial expansion has fuelled greater income inequality. Higher levels of credit intermediation and stock markets are both related with a more unequal distribution of income. Greater income inequality may not reduce the welfare of even the lowest earners so long as their income growth is not negatively affected. Numerical simulations based on a novel empirical methodology indicate, however, that the financial expansion has put a brake on the income growth of many low- and middle-income households. No evidence is found that financial crises explain the observed relationships. While causality is difficult to establish beyond doubt, the paper finds credit patterns which are inconsistent with reverse causality running from greater income inequality to more household borrowing. Finance et les inégalités de revenus dans les pays de l'OCDE Ce document, qui s’appuie sur des données portant sur les trente dernières années recueillies dans des pays de l’OCDE, démontre que l’expansion financière a contribué à creuser les inégalités de revenus. La progression de l’intermédiation du crédit et le développement des marchés boursiers sont tous deux corrélés à une répartition plus inégale des revenus. Cette hausse des inégalités de revenus ne nuit pas nécessairement au bien-être des travailleurs, y compris des moins bien rémunérés, pour autant qu’elle n’ait pas d’impact négatif sur la croissance de leurs revenus. Des simulations numériques, réalisées selon une méthodologie empirique novatrice, montrent toutefois que l’expansion financière a entravé la hausse des revenus de nombreux ménages à revenus faibles ou intermédiaires. Rien n’indique que les crises financières puissent expliquer les corrélations observées. S’il est difficile d’établir avec certitude un lien de causalité, le document identifie des caractéristiques de la répartition du crédit parmi la population qui tendent à exclure l’hypothèse de causalité inverse, selon laquelle une plus grande inégalité des revenus entraînerait une hausse de l’emprunt chez les ménages.

Suggested Citation

  • Oliver Denk & Boris Cournède, 2015. "Finance and income inequality in OECD countries," OECD Economics Department Working Papers 1224, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1224-en
    DOI: 10.1787/5js04v5jm2hl-en
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    File URL: https://doi.org/10.1787/5js04v5jm2hl-en
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    References listed on IDEAS

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    More about this item

    Keywords

    coefficient de Gini; crise financière; finance; finance; financial crisis; Gini coefficient; income growth; income inequality; inégalités de revenu; marché boursier; stock market;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services

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