Financial Market Access and Capital Income Inequality

Miquel Pellicer

Czech Journal of Economics and Finance (Finance a uver), 2008, vol. 58, issue 11-12, 554-575

Abstract: This paper explores the effect of broadening financial market access on inequality. I characterize in a parsimonious model of endogenous market participation how capital income inequality depends on financial market costs. A Kuznets curve type of relationship is uncovered under DARA utility. Data on the contribution of capital income to inequality (CKI) in eleven countries is presented against a measure of equity trading costs. Consistently with the model, during the last few decades of improving market access, the CKI has tended to increase where trading costs have been high, and to decrease where these costs have been low enough. The results imply that financial liberalization may have differential effects for inequality in advanced and in emerging economies.

Keywords: income inequality; household portfolio; financial liberalization (search for similar items in EconPapers)
JEL-codes: D14 D31 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:58:y:2008:i:11-12:p:554-575

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