A closer look at financial development and income distribution

Céline Gimet and Thomas Lagoarde-Segot

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Abstract: This paper analyzes the under-investigated relationship uniting financial development and income distribution. We use a novel approach taking into account for the first time the specific channels linking banks, capital markets and income inequality, the time-varying nature of the relationship, and reciprocal causality. We construct a set of annual indicators of banking and capital market size, robustness, efficiency and international integration. We then estimate the determinants of income distribution using a panel Bayesian structural vector autoregressive (SVAR) model, for a set of 49 countries over the 1994-2002 period. We uncover a significant causality running from financial sector development to income distribution. In addition, the banking sector seems to exert a stronger impact on inequality. Finally, the relationship appears to depend on characteristics of the financial sector, rather than on its size.

Keywords: finance; income distribution; SVAR (search for similar items in EconPapers)
Date: 2011
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00564641v1
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Citations: View citations in EconPapers (88)

Published in Journal of Banking and Finance, 2011, 35 (7), pp.1698-1713. ⟨10.1016/j.jbankfin.2010.11.011⟩

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Journal Article: A closer look at financial development and income distribution (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00564641

DOI: 10.1016/j.jbankfin.2010.11.011

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