Finance and inequality: theory and evidence

Asli Demirguc-Kunt and Ross Levine ()

No 4967, Policy Research Working Paper Series from The World Bank

Abstract: This paper critically reviews the literature on finance and inequality, highlighting substantive gaps in the literature. Finance plays a crucial role in most theories of persistent inequality. Unsurprisingly, therefore, economic theory provides a rich set of predictions concerning both the impact of finance on inequality and about the relevant mechanisms. Although subject to ample qualifications, the bulk of empirical research suggests that improvements in financial contracts, markets, and intermediaries expand economic opportunities and reduce inequality. Yet, there is a shortage of theoretical and empirical research on the potentially enormous impact of formal financial sector policies, such as bank regulations and securities law, on persistent inequality. Furthermore, there is no conceptual framework for considering the joint and endogenous evolution of finance, inequality, and economic growth.

Keywords: Access to Finance; Economic Theory&Research; Debt Markets; Inequality (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-dev
Date: 2009-06-01
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Working Paper: Finance and Inequality: Theory and Evidence (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:wbk:wbrwps:4967

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