Rethinking the Income Inequality and Financial Development Nexus. A Study of Nine OECD Countries

Sustainable finance seeks to increase the contribution of finance to sustainable and inclusive growth. The global financial crisis of 2008 provoked the return of inequality in advanced countries to levels typical of a century ago. The aim of this paper is to empirically analyze the relationship betw...

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Bibliographic Details
Published in:Sustainability 2020-07, Vol.12 (13), p.5449
Main Authors: de la Cuesta-González, Marta, Ruza, Cristina, Rodríguez-Fernández, José M.
Format: Article
Language:English
Subjects:
Consumption
COVID-19
Crises
Economic crisis
Economic growth
GDP
Gross Domestic Product
Households
Income distribution
Income inequality
International finance
Low income groups
Market economies
Propensity to consume
Resilience
Socioeconomics
Sustainability
Sustainable development
Variables
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Summary:Sustainable finance seeks to increase the contribution of finance to sustainable and inclusive growth. The global financial crisis of 2008 provoked the return of inequality in advanced countries to levels typical of a century ago. The aim of this paper is to empirically analyze the relationship between finance and income inequality for a group of nine OECD countries over the pre-crisis and post-crisis periods (2000–2015). The model proposed in this study simultaneously considers two explanatory variables for measuring financial depth (credit provision and capital markets) and a new multidimensional variable to measure the financial system’s resilience (a composite indicator), and conducts panel data analysis. The empirical results confirm that in terms of financial depth, the "too much finance hypothesis" holds. We also find that financial system’s resilience helps alleviate existing income inequality and that income inequality appears higher in liberal market economies than in coordinated economies. These results encourage policymakers to look beyond traditional public redistribution interventions and to pay attention to other financial variables related to the financialization process, the behavior of financial intermediaries, and the specific environment in which they operate.
ISSN:2071-1050
2071-1050
DOI:10.3390/su12135449