The relationship between income inequality and aggregate saving: an empirical analysis using cross-country panel data

If the rich save more than the poor, an increase in income inequality raises aggregate saving. We investigate whether income inequality is positively related to aggregate saving ratio by estimating a fixed-effect model based on a panel data of 48 countries for the period 1991–2010. We find evidence that aggregate saving ratio increases with income inequality using various inequality measures. In particular, the effect of income distribution on saving is greater and statistically more significant with in financially developed, rich and OECD countries. It suggests that the rich save much more than the poor under advanced financial system and in a rich country. We also find that the relationship between income inequality and saving ratio is closer in the 2000s than the 1990s. This finding may result from financial development and the high income level in the 2000s.     

Income inequality and financial reform in Asia: the role of human capital

We investigate whether financial reform can reduce income inequality in Asia, with particular emphasis on the role of human capital. Extending Galor and Zeira (1993), we demonstrate that financial reform is effective in reducing income inequality, and the effect is more profound in a country with higher human capital. Using the data for 18 countries in Asia, the region with the most promising financial reform, we confirm our theoretical finding. In addition, among disaggregated financial reforms, lift of credit control, better banking supervision and security market development seem to be significantly associated with reduction of income inequality.     

包容性金融发展与城乡居民收入差距*——基于中国内地省级面板数据的实证研究

本文借鉴二元经济增长模型,分析了包容性金融发展与城乡居民收入差距的关系,并采用2011—2015年中国内地省级面板数据,运用面板数据模型和系统GMM模型对理论假设进行了实证检验。实证分析发现：（1）包容性金融发展对缩小城乡居民收入差距具有明显的促进作用;（2）传统银行的金融服务成本、互联网金融的数字支持服务程度对城乡居民收入差距的影响显著为负,这表明,包容性金融发展缩小城乡居民收入差距的直接作用主要是通过降低金融服务成本实现的;（3）传统银行金融包容性在缩小城乡居民收入差距方面的作用,东部比中西部更加明显,而互联网金融包容性对城乡居民收入差距的影响在中西部地区显著。据此,本文提出,应重视包容性金融发展的收入分配效应,以缩小我国城乡居民收入差距。     

我国收入不平等、金融发展和消费需求波动的实证研究:1978～2001

本文考察了收入不平等与总消费需求变动之间的联系,在高收入地区,不平等程度越大似乎消费需求波动越大,而在低收入地区,收入不平等越大,消费需求波动反而较小。本文找到证据表明金融发展水平能有助于解释为什么收入分配在高收入和低收入地区中影响消费需求的短期波动是不同的,本文的政策含义是,加快低收入地区如中西部的经济和金融发展步伐,加大金融发展相机调整的力度。     

The impact of financial development,economic growth,income inequality on poverty: evidence from India

This paper examines the impact of financial development, economic growth and income inequality on poverty in India from 1970 to 2015 by employing the autoregressive distributed lag (ARDL) bounds testing procedure. The findings reveal a robust long-run relationship between financial development, economic growth, inequality and poverty. Results show that financial development and economic growth help in poverty reduction in India, whereas income inequality and inflation aggravate poverty. Empirical evidence of the Granger-causality test supports the presence of unidirectional causality from financial development and economic growth to poverty. Moreover, bidirectional causality exists between inequality and poverty. The present study provides evidence on which the policymakers may proceed with detailed investigation of how specific financial sector policies and interventions can be deployed as effective instruments for achieving favorable economic growth and income distribution. The study recommends that policies geared toward increasing financial development and economic growth should be adopted to reduce the high level of poverty and inequality currently prevailing in India.     

金融发展加剧了中国收入不平等吗?——基于门槛回归模型的证据

作为现代经济的核心变量,金融发展的收入分配效应是宏观经济领域的一个新兴议题。文章系统梳理了国内外研究文献,总结金融发展影响收入不平等的传导机制,并利用中国1996-2009年省际面板数据和Hansen(1999)的门槛模型,对金融发展的收入分配效应进行了估计。研究结果表明,在样本期间内金融发展显著加剧了中国收入不平等,而且金融发展的收入分配效应表现出鲜明的门槛特征,跨越特定门槛值省区的金融发展对收入不平等的影响更大。     

Financial development,control of corruption and income inequality

This paper examines the effect of financial development and control of corruption on income inequality in 21 Sub-Saharan African (SSA) countries over the period 1985–2011 using the pooled mean group (PMG) estimator. The empirical results show that financial development measures have positive impact on income inequality, which suggest that financial development increases income inequality. On the other hand, the coefficients of control of corruption are negative and significantly related to income inequality which implies that corruption control reduces income inequality. Further, the interaction of the financial development and the control of corruption is found to be negatively and significantly related to income inequality. Equally the interaction of the financial development and transparency index (an alternate measure of corruptibility) is found to be negatively and significantly related to income inequality. These findings suggest that the control of corruption and transparency in governance are crucial in reducing income inequality in SSA.     

Income inequality and credit expansion in post-communist countries

There is an on-going debate on the antecedents and consequences of income inequality. Recent studies find that income inequality was a cause of the recent financial crisis. However, the findings on the inequality–indebtedness relationship are mixed and based on analyses of developed countries. The aim of this research is to test how income inequality influences borrowing in post-communist countries, whose financial markets are not very developed, which has important implications for income inequality. Therefore, we include financial system development in the analysis. We base our analysis on state-level panel data and find that income inequality will increase indebtedness in the private sector. However, these results are model and region specific. To preclude higher income inequality and the emergence of a financial crisis, policies should be directed towards improving the role of financial intermediaries and stock markets.     

Financial deepening and income inequality: Is there any financial Kuznets curve in China? The political economy analysis

The interconnectedness of financial deepening and income inequality has been a highly controversial discussion which has not been concluded despite many empirical and theoretical studies up to date. One of the basic building blocks for many research designs is the reliance upon the Kuznets inverted U-shaped curve which postulates that in the first phase of economic growth income inequality increases, peaks and then decreases to a tolerable level in the later phase after a certain income level had been attained. The role of financial deepening in financing economic growth is an indispensable and necessary condition enabling us to easily draw an analogy between financial deepening and income inequality in a financial version of the Kuznets curve. In spite of 30 years of economic and financial reforms in China, which represents a fairly young history of economic growth and development, there are many indicators that Chinese experience significantly deviates from the presupposed inverted U-shaped curve trajectory and its final equalizing effect. This paper relies on financial deepening data measured by monetary aggregate M2/GDP and domestic banking credit/GDP ratios in its claim that they significantly correlate with rising income inequality. The author’s intention consists not in claiming that financial deepening per se causes income inequality, but provides a political economy analysis of the specific institutional and power configuration which leads to their positive relationship. This configuration is determined by the prevailing banking model, the hukou system, financial repression and the decentralized authoritarian system. On the other hand, the absence of inequality-narrowing institutitons further aggravate the problem. All the aforementioned factors are geared at avoiding mechanical and spurious claims that financial deepening increases or decreases income inequality across countries. A historical institutionalism approach to explain China’s path related to the Kuznets curve prediction shows the central validity of open and inclusive institutions in generating inequality-narrowing benefits of financial deepening.     

Wealth inequality and financial inclusion: Evidence from South African tax and survey records

Theoretical models show that financial inclusion reduces wealth inequality. Existing empirical models are restricted to estimates using income inequality because of a lack of cross country wealth inequality data. We used 2010-11 and 2014-5 waves of the National Income Dynamics Study combined with South African tax records to estimate wealth and income inequality. Using Re-centered Influence Function regressions on the micro-level records, we confirmed the negative cross-country relationship between financial inclusion and income inequality. Wealth inequality is different. Financial inclusion improved wealth shares of only the middle class. Because of predatory lending, expansion of credit reduced the wealth share of the poor. Improved savings by the middle class, providing better oversight over financial services targeted at the poor and removing impediments to the small business sector are pre-conditions for financial inclusion to reduce wealth inequality.     

Political regimes and income inequality

We construct a theoretically-motivated model of income inequality. Through a pooled regression on an international panel, we demonstrate that political regime (whether extractive, redistributive, or reinvestment-oriented) correlates with within-country income inequality.     

Development outcomes,resource abundance,and the transmission through inequality

The paper studies the effect of resource abundance on human development in light of two complementary hypotheses: (i) resource abundance increases the inequality of income distribution within a country and (ii) higher income inequality reduces human development. The estimation of a system of equations provides support to both hypotheses. In addition, results suggest that resource abundance might also affect human development by reducing the quality of institutions. However, while statistically significant, this effect is quantitatively small. Finally, there is evidence of a strong, negative direct effect of resource abundance on human development after controlling for inequality, institutional quality, and the level of per-capita income.     

Political instability: Effects on financial development, roots in the severity of economic inequality

We here bring forward strong evidence that political instability impedes financial development, with its variation a primary determinant of differences in financial development around the world. As such, it needs to be added to the short list of major determinants of financial development. First, structural conditions first postulated by Engerman and Sokoloff (2002) as generating long-term inequality are shown here to have strong empirical support as exogenous determinants of political instability. Second, that exogenously-determined political instability in turn holds back financial development, even when we control for factors prominent in the last decade’s cross-country studies of financial development. The findings indicate that inequality-perpetuating conditions that result in political instability and weak democracy are fundamental roadblocks for international organizations like the World Bank that seek to promote financial development. The evidence here includes country fixed effect regressions and an instrumental model inspired by Engerman and Sokoloff’s (2002) work, which to our knowledge has not yet been used in finance and which is consistent with current tests as valid instruments. Four conventional measures of national political instability – Alesina and Perotti’s (1996) well-known index of instability, a subsequent index derived from Banks’ (2005) work, and two indices of managerial perceptions of nation-by-nation political instability – persistently predict a wide range of national financial development outcomes. Political instability’s significance is time consistent in cross-sectional regressions back to the 1960s, the period when the key data becomes available, robust in both country fixed effects and instrumental variable regressions, and consistent across multiple measures of instability and of financial development. Overall, the results indicate the existence of an important channel running from structural inequality to political instability, principally in nondemocratic settings, and then to financial backwardness. The robust significance of that channel extends existing work demonstrating the importance of political economy explanations for financial development and financial backwardness. It should help to better understand which policies will work for financial development, because political instability has causes, cures, and effects quite distinct from those of many of the key institutions most studied in the past decade as explaining financial backwardness.     

Remittances flow and financial development in Bangladesh

Workers' remittance is a major source of foreign exchange earnings and plays an important role in the economy of Bangladesh. It accounts for 12% of GDP in 2010. This paper examines with annual data for 1971–2008, whether the flow of remittances is contributing positively to the development of the financial system of the country. Our results suggest that remittances have a significant positive effect on financial development. However, financial sector's development is neutral in its effect on the inflow of remittances.     

Finance,inequality and the poor

Financial development disproportionately boosts incomes of the poorest quintile and reduces income inequality. About 40% of the long-run impact of financial development on the income growth of the poorest quintile is the result of reductions in income inequality, while 60% is due to the impact of financial development on aggregate economic growth. Furthermore, financial development is associated with a drop in the fraction of the population living on less than $ 1 a day, a result which holds when conditioning on average growth. These findings emphasize the importance of the financial system for the poor.      

Inequality,poverty and development

Dicussion explores the nature of the relationship between the distribution of income and the process of development on the basis of cross country data on income inequality. The results presented are based on a sample of 60 countries, including 40 developing countries, 14 developed countries, and 6 socialist countries. The approach adopted is essentially exploratory. Multivariate regression analysis was used to estimate cross country relationships between the income shares of different percentile groups and selected variables reflecting aspects of the development process which are likely to influence income inequality. The estimated equations are then used as a basis for broad generalizations about the relationship between income distribution and development. There was strong support for the proposition that relative inequaltiy increases substantially in the early stages of development, with a reversal of this tendency in the later stages. The propositions held whether the sample was restricted to developing countries or expanded to include developed and socialist countries. The process was most prolonged for the poorest group. There were a number of processes occurring "pari passu" with development which were correlated with income inequality and which can plausibly be interpreted as causal. These were intersectoral shifts in the structure of production, expansion in education attainment and skill level of the labor force; and reduction in the growth of population. The operation of these processes appeared to explain some of the improvement in income distribution observed in the later stages of development, but they did not serve to explain the marked deterioration observed in the earlier stages. The cross section results failed to support the stronger hypothesis that the deterioration in relative inequality reflected a prolonged absolute impoverishment of large sections of the population in the course of development. The cross country pattern showed average absolute incomes of the lower percentile groups rising as per capita gross national product rises, although slower than for upper income groups. The cross section results failed to support the view that a faster rate of growth is systematically associated with higher inequality than can be expected given the state of development realized. An appendix identifies data sources and problems.     

Income inequality and crime in the United States

This paper investigates the relationship between income inequality and crime. Results show that there is a strong and robust effect of relative income inequality on burglary. Effect on robbery is also strong and robust in most cases.     

Finance,income inequality and income redistribution

Using a panel fixed effects model for a large sample of countries covering 1975–2005, we test the hypothesis that income inequality caused by finance (financial development, financial liberalization and banking crises) is related to more income redistribution than inequality caused by other factors. Our results provide evidence in support of this hypothesis. We also find that the impact of inequality on redistribution is conditioned by ethno-linguistic fractionalization. Our findings are robust to the inclusion of several control variables suggested by previous studies.     

Finance and income inequality in Kazakhstan: evidence since transition with policy suggestions

Kazakhstan gained independence in 1990 and has undergone significant changes in economic, social and trade conditions since then. We analyse the effects of financial development on income inequality in Kazakhstan, incorporating economic growth, foreign investment, education and the role of democracy as the drivers. We establish that income inequality in Kazakhstan is impaired by financial development. In summary, we send three messages for policy purposes. First, strengthening financial sector is necessary to close the gap between ‘haves and have-nots’. Second, attracting FDI beyond the hydrocarbon sector is necessary to alleviate inequality. Finally, adaptation of education system to the new social and economic environment would help in improving income distribution.     

Entrepreneurship and income inequality: a spatial panel data analysis

The main objective of this paper is to empirically analyze the relationship between entrepreneurship and income inequality. We use a spatial panel data analysis for both 33 high-income countries and 39 middle- and low-income countries over a period of 11 years. Estimation results and rigorous diagnostic analysis suggest that: (i) there is a strong support for the existence of an inverted U-shaped relationship between entrepreneurship and income inequality espoused by the Kuznets Curve hypothesis; (ii) the relationship between entrepreneurship and income inequality is negatively moderated by country’s level of economic development; (iii) regardless of income inequality levels, entrepreneurship has a non-linear relationship with income per capita; (iv) gross domestic expenditure on research and development exhibits significant negative impacts on entrepreneurship; (v) significant mixed effects on the likelihood of entrepreneurial activity are observed with governance, globalization, population growth rate, and competitiveness variables; (vi) there are significant mixed feedback effects on entrepreneurship; and (vii) there are statistically significant, positive as well as negative spatial spillovers to country-level entrepreneurial activity.