Financial Globalization vs. Income Inequality: The Surprising Role of Delegated Portfolio Flows in Taming the Top 1%

Massimo Massa, Si Cheng and Hong Zhang

No 15745, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We document a surprising finding that foreign capital inflows delegated through global mutual funds reduce the income of the top 1%. To rationalize this observation, we utilize a comprehensive database of worldwide ownership of both private and public firms for 2001-2013, which allows us to trace income inequality to its micro-foundations of sales revenue accrued to rich families. We find that large delegated foreign inflows induce local rich families to sell concentrated yet profitable assets, consistent with a diversification channel for financial globalization to influence income inequality. Alternative mechanisms fail to explain these findings. Our results have important normative implications

Keywords: Financial globalization; Income inequality; Delegated portfolio management; Mutual funds (search for similar items in EconPapers)
JEL-codes: D31 D63 G15 G23 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cwa
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