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Financial deepening and income distribution inequality in the euro area

Donatella Baiardi and Claudio Morana ()
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Donatella Baiardi: Università di Milano Bicocca

No 153, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: The paper introduces a new specification of the Kuznets curve, where turning point per capita income is conditioned to the level of financial development. Within the proposed framework, it then provides new evidence on real income convergence for the euro area (EA) since the mid-1980s, with a special focus on the subprime and sovereign debt financial crises. We find strong empirical evidence in favor of an EA-wide steady-state financial Kuznets curve and of ongoing convergence across EA members toward a common per capita income turning point level. By means of a counterfactual analysis, we then detect a worsening in income inequality for all the EA countries during the financial crises, and not only for the peripheral countries, which were most strongly hit. From a policy perspective, our findings highlight the role of financial stability in fostering not only economic growth, but also to achieve a more even distribution of income.

New Economics Papers: this item is included in nep-eec
Date: 2015-12
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Working Paper: Financial deepening and income distribution inequality in the euro area (2015) Downloads
Working Paper: Financial Deepening And Income Distribution Inequality In The Euro Area (2015) Downloads
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