The long-run relationship between finance and income inequality: Evidence from panel data

John Thornton, Caterina di Tomasso

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Abstract

We use heterogeneous panel cointegration techniques to examine the long-run effect of financial development on income inequality in a panel of 119 countries from 1980 to 2015. We include real GDP per capita in the cointegration relation and explicitly deal with cross-sectional dependence in the data that arises due to unobserved common factors. On average, financial development reduces income inequality in the long-run, with the result robust to different measures of finance and across country income groups.
Original languageEnglish
Article number101180
Number of pages6
JournalFinance Research Letters
Volume32
Early online date30 Apr 2019
DOIs
Publication statusPublished - Jan 2020

Keywords

  • Financial development
  • Heterogeneous panel cointegration
  • Income inequality

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