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Inequality, Financial Development and Government: Evidence from Low-Income Developing Countries

Muhammad Majeed ()

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this study is to examine the impact of financial and economic development on cross-country income inequality using a panel data set from 50 low-income developing counties over a long period 1970-2008. The results show that financial development helps in reducing inequalities, however a non-monotonic relationship between financial development and inequality does not hold. The study finds a non-monotonic relationship between inequality and level of economic development, thus this study supports Kuznets inverted-U hypothesis. The government emerges as a major player in reducing income inequalities as its role is significant in all models. Policy makers should primarily focus on achieving the higher levels of economic development to reduce increasing inequalities. Since financial development, reduces inequalities irrespective of its level, policy makers need to focus more on improvements in financial reforms.

Keywords: Inequality; Financial Development; Government; Developing Countries (search for similar items in EconPapers)
JEL-codes: C23 D31 E4 E51 H10 (search for similar items in EconPapers)
Date: 2013-09-30
New Economics Papers: this item is included in nep-cwa and nep-mac
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