Financial development, economic growth and income inequality: a panel data approach
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Date
2019
Authors
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Journal ISSN
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Publisher
University of Zululand
Abstract
Since the pattern of income distribution can be influenced by financial development, it is of major importance to both developing and developed economies. To add to the body of literature, this paper tested empirically, within a panel data framework, the theoretical foundations of the linear relationship between financial development and income inequality developed by Galor and Zeira (1993) and Banerjee and Newman (1993). Moreover, the nonlinear theoretical relationship advocated by Greenwood and Javanovic (1990) was evaluated. The study employed an unbalanced dataset over the 1970 - 2014 period, involving 142 developed and developing countries.
It was found that financial development increases income inequality as measured by the Gini coefficient, after controlling for country fixed effects. These results are robust to different measures of financial development and control variables. The policy implication is that a wealth tax, as advocated by Piketty (2014) to subsidise social spending, is critical in order to address the disparities caused by financial development.
Description
A dissertation for the degree of Master of Commerce in the Department of Economics,
Faculty of Commerce, Administration & Law at the University of Zululand, 2019.
Keywords
Financial development, Economic growth, Income inequality