Banks, financial markets, and income inequality

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Makhlouf, Y. ORCID: 0000-0001-7737-3153, Kellard, N. and Vinogradov, D.V., 2023. Banks, financial markets, and income inequality. International Journal of Finance and Economics. ISSN 1076-9307 (Forthcoming)

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Abstract

While financial development is often found to raise income inequality, it remains unclear whether the composition of the financial system makes a difference. In our sample of 99 countries in 1975-2020, increased activity of banks relative to markets in the provision of financial services is robustly associated with less inequality in the developing world yet with more inequality in developed economies. Accounting for redistribution systems does not alter this finding; banking sector concentration amplifies the effects. Results suggest that banks work at the extensive margin at earlier stages of economic development yet shift to the intensive margin at higher levels of development, where they increasingly serve the interests of the rich. Higher market power enables banks to better pursue their objectives at each of the margins.

Item Type:

Journal article

Publication Title:

International Journal of Finance and Economics

Creators:

Makhlouf, Y., Kellard, N. and Vinogradov, D.V.

Publisher:

Wiley

Date:

22 October 2023

ISSN:

1076-9307