Banks, financial markets, and income inequality

Makhlouf, Y., Kellard, N. and Vinogradov, D. V. (2023) Banks, financial markets, and income inequality. International Journal of Finance and Economics, (doi: 10.1002/ijfe.2910) (Early Online Publication)

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 over the period 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: Articles
• Status: Early Online Publication
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Vinogradov, Professor Dmitri
• Authors: Makhlouf, Y., Kellard, N., and Vinogradov, D. V.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: International Journal of Finance and Economics
• Publisher: Wiley
• ISSN: 1076-9307
• ISSN (Online): 1099-1158
• Published Online: 13 November 2023
• Copyright Holders: Copyright © 2023 The Authors
• First Published: First published in International Journal of Finance and Economics 2023
• Publisher Policy: Reproduced under a Creative Commons licence