Financial Deepening and Income Distribution Inequality in the Euro Area

34 Pages Posted: 1 Dec 2015

See all articles by Donatella Baiardi

Donatella Baiardi

University of Pavia; University of Parma

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES); Center for Economic Research on Pensions and Welfare Policies (CeRP); Rimini Center for Economic Analysis - Europe ETS; Rimini Center for Economic Analysis - HQ

Date Written: November 30, 2015

Abstract

The paper introduces a new specification of the Kuznets curve, where turning point per capita income is conditioned to the level of financial development. Within the proposed framework, it then provides new evidence on real income convergence for the euro area (EA) since the mid-1980s, with a special focus on the subprime and sovereign debt financial crises. We find strong empirical evidence in favor of an EA-wide steady-state financial Kuznets curve and of ongoing convergence across EA members toward a common per capita income turning point level. By means of a counterfactual analysis, we then detect a worsening in income inequality for all the EA countries during the financial crises, and not only for the peripheral countries, which were most strongly hit. From a policy perspective, our findings highlight the role of financial stability in fostering not only economic growth, but also to achieve a more even distribution of income.

Keywords: Euro area; financial development; financial stability; income distribution inequality; Kuznets curve; real convergence; subprime mortgage and sovereign debt crisis.

JEL Classification: G20, G28, O11, O15, O16.

Suggested Citation

Baiardi, Donatella and Morana, Claudio, Financial Deepening and Income Distribution Inequality in the Euro Area (November 30, 2015). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 316, Available at SSRN: https://ssrn.com/abstract=2697037 or http://dx.doi.org/10.2139/ssrn.2697037

Donatella Baiardi

University of Pavia ( email )

Corso Strada Nuova, 65
27100 Pavia, 27100
Italy

University of Parma ( email )

Via Amendola 10
Parma, 43100
United States

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

Rimini Center for Economic Analysis - Europe ETS ( email )

Piazza Ateneo Nuovo 1
Milan, 20126
Italy

Rimini Center for Economic Analysis - HQ ( email )

900 University Avenue
Riverside, CA 92521
United States

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