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Does more finance mean more inequality in times of crisis?

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  • Mathonnat, Clément
  • Williams, Benjamin

Abstract

Many recent empirical studies show that both banking crises and financial development (FD) play an important role in understanding the dynamics of income inequality (IncI) over the last decades. However, so far no study has investigated the role of FD in the amplification of IncI following banking crises. This paper seeks to address this issue based on a sample of 69 banking crises in 54 countries over the 1977–2013 period. Our analysis suggests that FD is associated with a significant increase in IncI in the aftermath of banking crises. This result is robust to a broad range of alternative specifications and is unaffected by various potential sources of endogeneity. We also show that the relationship between FD and the redistributive consequences of banking crises is not subject to a threshold effect and is stronger for developing countries.

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  • Mathonnat, Clément & Williams, Benjamin, 2020. "Does more finance mean more inequality in times of crisis?," Economic Systems, Elsevier, vol. 44(4).
    • Handle: RePEc:eee:ecosys:v:44:y:2020:i:4:s0939362518305338
    DOI: 10.1016/j.ecosys.2020.100818
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    More about this item

    Keywords

    Financial development; Banking crises; Income inequality;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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