Financial Development and Income Inequality at Different Levels of Institutional Quality

Law, Siong Hook; Tan, Hui Boon; Azman-Saini, W.N.W.

doi:10.2753/ree1540-496x5001s102

Cited by 141 publications

(97 citation statements)

References 34 publications

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“…According to Rajan and Zingales (2003), in weak institutional environments established interests have privileged access to finance so that financial development induced by captured direct controls is likely to hurt the poor. In the presence of strong institutions, financial development may reduce inequality, allowing the poor to invest in human and physical capital (Law et al, 2014). A similar argument can be made for financial liberalization (Delis et al, 2014).…”

Section: Introductionmentioning

confidence: 94%

“…Since the Hausman tests often do not clearly indicate that fixed effects need to be used, it makes sense to also estimate random effects models. This has an additional advantage, namely that we can follow several previous papers (Clarke et al, 2006;Kappel, 2010;Kanieda et al 2014 andLaw et al, 2014) and use legal origin dummies as instruments for financial development. According to La Porta et al (1997, the introduction of common or civil law into a country via conquest or colonization not only affected the legal rules but also institutions.…”

Section: Random Effects Modelsmentioning

confidence: 99%

“…Below this critical threshold, financial development exacerbates income inequality. Using data for 81 countries over the period 1985-2010 in a cross-section model, Law et al (2014) conclude that financial development tends to reduce income inequality only after a certain threshold level of institutional quality has been achieved. Until then, the effect of financial development on income inequality is nonexistent.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Li et al 1998, Clarke et al, 2006, Beck et al, 2007, Kappel, 2010, Hamori and Hashiguchi, 2012and Naceur and Zhang, 2016, 6 other studies report a non-linear relationship (e.g. Kim andLin, 2011 andLaw et al, 2014), 7 mixed results (Bahmani-Oskooee and Zhang, 2015), 8 or a than size should be examined. Most empirical research focuses, however, on financial sector size, a recent exception being the study by Naceur and Zhang (2016).…”

Section: Literature Reviewmentioning

confidence: 99%

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Finance and Income Inequality: A Review and New Evidence

Haan

Sturm

2016

SSRN Journal

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Section: Introductionmentioning

confidence: 94%

Section: Random Effects Modelsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Finance and Income Inequality: A Review and New Evidence

Haan

Sturm

2016

SSRN Journal

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“…Bordo (2012) employs 14 countries to test the interrelationships between income distribution, credit booms and financial crises, and argues that the latter two variables are significantly linked to each other, as has many other recent studies also reveal, whereas income distribution is not. Law et al (2014) use 81 countries to show that financial development helps improve income distribution above a threshold level of institutional development.…”

Section: Introductionmentioning

confidence: 99%

Income Distribution and Economic Crises

Neyaptı

Aksit²

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper analyzes the relationship between income distribution and the severity of economic crises, where the severity is measured by the length and the depth of the recessions. Using an extensive panel dataset on income distribution and employing an event study framework, we find significant evidence that there is a negative association between the prevailing degree of income inequality and the severity of the recessions. In the case of high income countries that have bad income distribution, however, recessions are observed to be longer than the average. This observation is likely to result from the combination of the strong status-quo bias of the financially powerful income groups and the available means to redistribute towards the poor so as to help mitigate the pressures for reforms to improve income distribution via creative destruction. The longer period of recessions observed in developed countries than in less developed countries in the aftermath of the Great Recession is in support of this argument. The findings also reveal that recessions tend to be longer during the decade of the 1990s than the rest of the period studied. The evidence regarding the corrective effect on the recessions of accommodative fiscal or monetary policy stance, measured by the size of the government and the inflation rate, is observed to be only barely significant on average. Terms of use: Documents inWirh regard to the impact of recessions on income distribution, the evidence in the paper indicates that the post-crises income distribution worsens significantly with the length but improves with the depth of the preceding recession. We also note that, in addition to the persistence effect, the lack of monetary discipline worsens income distribution in the postcrises period significantly.JEL Classifications: E25, E32, O11

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Meditation for level of institutional quality to combat income inequality through financial development

Madni

Ali

2020

Int. J Fin Econ

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Institutional role to perpetuate the relationship between financial development and income inequality has significant importance from policy perspectives. The broadening income inequality and its procurement through financial sector is attracting the worldwide attention of researchers now days. This study is an attempt to investigate the relationship of income inequality and financial development varying with level of institutional quality. To this end, unbalanced panel data set for 124 countries covering the time span 1990–2015 is used applying the instrumental variable threshold regression approach. The estimated results highlight that embedded efficient institutional framework of a country assures more income equality with financial development. Moreover, GDP growth increases the income inequality if institutional quality is below the threshold level while educational attainment is a major factor to decrease it. In respect of policy implications, financial sector may be fruity to overcome income inequality if policy makers bring the level of institutional quality up to threshold level of that country.

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Financial Development and Income Inequality at Different Levels of Institutional Quality

Cited by 141 publications

References 34 publications

Finance and Income Inequality: A Review and New Evidence

Finance and Income Inequality: A Review and New Evidence

Income Distribution and Economic Crises

Meditation for level of institutional quality to combat income inequality through financial development

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