Finance and Inequality: Theory and Evidence

52 Pages Posted: 20 Apr 2016

See all articles by Asli Demirgüç-Kunt

Asli Demirgüç-Kunt

World Bank

Ross Levine

Stanford University; National Bureau of Economic Research (NBER)

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Date Written: June 1, 2009

Abstract

This paper critically reviews the literature on finance and inequality, highlighting substantive gaps in the literature. Finance plays a crucial role in most theories of persistent inequality. Unsurprisingly, therefore, economic theory provides a rich set of predictions concerning both the impact of finance on inequality and about the relevant mechanisms. Although subject to ample qualifications, the bulk of empirical research suggests that improvements in financial contracts, markets, and intermediaries expand economic opportunities and reduce inequality. Yet, there is a shortage of theoretical and empirical research on the potentially enormous impact of formal financial sector policies, such as bank regulations and securities law, on persistent inequality. Furthermore, there is no conceptual framework for considering the joint and endogenous evolution of finance, inequality, and economic growth.

Keywords: Access to Finance, Economic Theory & Research, Debt Markets, Inequality

Suggested Citation

Demirgüç-Kunt, Asli and Levine, Ross, Finance and Inequality: Theory and Evidence (June 1, 2009). World Bank Policy Research Working Paper No. 4967, Available at SSRN: https://ssrn.com/abstract=1427627

Asli Demirgüç-Kunt (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Ross Levine

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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