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Financial inclusion, rather than size, is the key to tackling income inequality

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  • David Martinez Turegano
  • Alicia Garcia-Herrero

Abstract

In this paper we assess empirically whether financial inclusion contributes to reducing income inequality when controlling for other key factors, such as economic development and fiscal policy. We conclude that financial inclusion contributes to reducing income inequality to a significant degree, while the size of the financial sector does not. The policy implication of this result is that financial inclusion should be at the forefront of government policies to reduce income inequality in a given economy. Given the broad way in which we have defined inequality in our empirical analysis, this means facilitating the use of credit to both households, especially low-income ones, as well as to small and medium-sized enterprises.

Suggested Citation

  • David Martinez Turegano & Alicia Garcia-Herrero, 2015. "Financial inclusion, rather than size, is the key to tackling income inequality," Working Papers 1505, BBVA Bank, Economic Research Department.
    • Handle: RePEc:bbv:wpaper:1505
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Emerging Economies; Financial Inclusion; Research; Working Paper;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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