Rethinking the Income Inequality and Financial Development Nexus. A Study of Nine OECD Countries

Marta de la Cuesta-González, Cristina Ruza and José M. Rodríguez-Fernández
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Marta de la Cuesta-González: Economic and Business Faculty, UNED (National University of Distance Education), C/ Senda del Rey 11, 28040 Madrid, Spain
Cristina Ruza: Economic and Business Faculty, UNED (National University of Distance Education), C/ Senda del Rey 11, 28040 Madrid, Spain
José M. Rodríguez-Fernández: Economic and Business Faculty, University of Valladolid Av. Valle de Esgueva, 6, 47011 Valladolid, Spain

Sustainability, 2020, vol. 12, issue 13, 1-18

Abstract: Sustainable finance seeks to increase the contribution of finance to sustainable and inclusive growth. The global financial crisis of 2008 provoked the return of inequality in advanced countries to levels typical of a century ago. The aim of this paper is to empirically analyze the relationship between finance and income inequality for a group of nine OECD countries over the pre-crisis and post-crisis periods (2000–2015). The model proposed in this study simultaneously considers two explanatory variables for measuring financial depth (credit provision and capital markets) and a new multidimensional variable to measure the financial system’s resilience (a composite indicator), and conducts panel data analysis. The empirical results confirm that in terms of financial depth, the "too much finance hypothesis" holds. We also find that financial system’s resilience helps alleviate existing income inequality and that income inequality appears higher in liberal market economies than in coordinated economies. These results encourage policymakers to look beyond traditional public redistribution interventions and to pay attention to other financial variables related to the financialization process, the behavior of financial intermediaries, and the specific environment in which they operate.

Keywords: sustainable finance; income inequality; financial depth; resilience; composite indicator; financial crisis; coordinated and liberal market economies (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:13:p:5449-:d:381108

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