The Relationship Between Income Inequality and Financial Development: Panel Data Analysis

Ali Altiner, Eda Bozkurt and Salih Turedi
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Ali Altiner: Recep Tayyip Erdogan University
Eda Bozkurt: Atatürk University
Salih Turedi: Recep Tayyip Erdogan University

Business and Economics Research Journal, 2022, vol. 13, issue 3, 349-366

Abstract: If all classes of society cannot benefit equally from the blessings of growth, although economic growth rates reach the desired level, an income inequality problem arises. At a time when income inequality is growing at the global level, governments are looking for various remedies to establish a more equitable distribution of income. Regulation and improvement of financial markets and ensuring financial development are among the solution offers. In this study, the relationship between income inequality and financial development in the period of 2000-2015 was examined for 30 countries. The countries covered are divided into three groups as the countries with the best, medium, and poor performance in terms of financial development. Panel data-based analyses were used. In this context, the Durbin-Hausman panel cointegration test and Common Correlated Error (CCE) coefficient estimator were applied. The findings proved the existence of a long-term relationship between the variables in all country groups. As a result of coefficient estimates, it was determined that the inverted U-hypothesis was valid for the countries with the best performance, the mixed results for the countries with a medium performance, and the partially inequality-narrowing hypothesis was valid for the countries with poor performance.

Keywords: Financial Development; Income Inequality; Financial Kuznets Curve Hypothesis; Sustainable Development; Panel Data Analysis (search for similar items in EconPapers)
JEL-codes: C23 D31 E44 O47 Q01 (search for similar items in EconPapers)
Date: 2022
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