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Does Financial Development Affect Income Inequality in the U.S. States? A Panel Data Analysis

Manoel Bittencourt, Shinhye Chang (), Rangan Gupta () and Stephen Miller ()
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Shinhye Chang: Department of Economics, University of Pretoria, Pretoria, South Africa

No 201803, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the role of financial development on U.S. state-level income inequality in the 50 states from 1976 to 2011, using fixed-effect estimation. We find robust results where by financial development linearly increases income inequality for the 50 states. When we divide 50 states into two separate groups of higher and lower inequality states than the cross-state average inequality, the effect of financial development on income inequality appears non-linear. When financial development improves, the effect increases at an increasing rate for high income inequality states, whereas an inverted U-shaped relationship exists for low-income inequality states. To our knowledge, this paper is the first to examine the role of financial development on U.S. state-level inequality.

Keywords: Income inequality; Panel data; Personal Income (search for similar items in EconPapers)
JEL-codes: C33 D31 D63 (search for similar items in EconPapers)
Date: 2018-01
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