Nonlinearity in the financial development–income inequality nexus |
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Authors: | Dong-Hyeon Kim Shu-Chin Lin |
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Institution: | aSungshin Women’s University, 249-1 Dongsun-dong 3-ga, Seongbuk-gu, Seoul 136-742, Republic of Korea;bTamkang University, 151 Yingzhuan Road, Dansui Dis., New Taipei City 25137, Taiwan |
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Abstract: | The majority of theoretical studies on the relationship between income inequality and financial development argue that financial deepening might be a feasible instrument for improving income distribution. This paper finds that the prediction crucially depends on the stages of financial development that the country is undergoing. The benefits of financial depth only occur if the country has reached a threshold level of financial development. Below this critical value, financial development counteracts income inequality. Our policy implication is that a minimum level of financial development is a necessary precondition for achieving reduction in income inequality through financial development. |
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Keywords: | JEL classification: C21 D31 G10 |
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