A closer look at financial development and income distributionReport as inadecuate

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1 GATE Lyon Saint-Étienne - Groupe d-analyse et de théorie économique 2 DEFI - Centre de recherche en développement économique et finance internationale 3 Euromed Marseille - École de management

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.

keyword : finance income distribution SVAR

Author: Céline Gimet - Thomas Lagoarde-Segot -

Source: https://hal.archives-ouvertes.fr/


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