Financial Inclusion and Welfare: New Evidence on the Role of Government

In this paper, we judge the role of government in promoting financial inclusion, measured through owning a basic bank account, but also examine the effects of this access on economic well-being, in Japan, India, and Ivory Coast. We use an optimal consumption model in competitive economy with government that embeds financial inclusion, which is endogenous. First, we find that financial inclusion leads to a higher equilibrium state. In fact, as financial inclusion increases, from low to high level, the economic equilibrium raises. Besides, a greater access to a bank account crowds out the harmful effects of taxes on the stationary state. Second, we find that, while the economy with high financial inclusion promotes greater welfare, low financial inclusion’s economy yields weaker welfare. Third, financial inclusion boots capital accumulation. This positive impact is greater for Japan, India, and Ivory Coast respectively. Accordingly, government has to play a key role to support financial inclusion. Basically, for the three economies, government can promote financial inclusion, and enhance savings, by making tax incentive schemes or social transfers, and move their payments, including wages, and pensions onto banking system. Particularly, in Ivory Coast, shifting individuals from informal to the formal sector can improve savings.