Financial deepening and income distribution inequality in the euro area

Donatella, Baiardi and Claudio Morana

No 316, Working Papers from University of Milano-Bicocca, Department of Economics

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.

Keywords: Euro area; financial development; financial stability; income distribution inequality; Kuznets curve; real convergence; subprime mortgage and sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: G20 G28 O11 O15 O16 (search for similar items in EconPapers)
Pages: 34
Date: 2015-12-04, Revised 2015-12-04
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Financial deepening and income distribution inequality in the euro area (2015)
Working Paper: Financial Deepening And Income Distribution Inequality In The Euro Area (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:316

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