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Does Financial Development Affect Income Inequality in the U.S. States? A Panel Data Analysis

Author

Listed:
  • Manoel Bittencourt

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Shinhye Chang

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Stephen M. Miller

    (Department of Economics, University of Nevada, Las Vegas, Nevada,USA)

Abstract

This paper examines the role of financial development on U.S. state-level income inequality in the 50 states from 1976 to 2011, using fixed-effect estimation. We find robust results where by financial development linearly increases income inequality for the 50 states. When we divide 50 states into two separate groups of higher and lower inequality states than the cross-state average inequality, the effect of financial development on income inequality appears non-linear. When financial development improves, the effect increases at an increasing rate for high income inequality states, whereas an inverted U-shaped relationship exists for low-income inequality states. To our knowledge, this paper is the first to examine the role of financial development on U.S. state-level inequality.

Suggested Citation

  • Manoel Bittencourt & Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Does Financial Development Affect Income Inequality in the U.S. States? A Panel Data Analysis," Working Papers 201803, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201803
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    Cited by:

    1. Manoel Bittencourt & Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Does Financial Development Affect Income Inequality in the U.S. States? A Panel Data Analysis," Working Papers 201803, University of Pretoria, Department of Economics.
    2. Koçak Emrah & Uzay Nısfet, 2019. "The effect of financial development on income inequality in Turkey: An estimate of the Greenwood-Jovanovic hypothesis," Review of Economic Perspectives, Sciendo, vol. 19(4), pages 319-344, December.
    3. Barhoom Faeyzh, 2023. "Revisiting the Financial Development and Income Inequality Nexus: Evidence from Hungary," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 11(1), pages 227-257, October.
    4. Nokulunga Mbona, 2022. "Impacts of Overall Financial Development, Access and Depth on Income Inequality," Economies, MDPI, vol. 10(5), pages 1-23, May.

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    More about this item

    Keywords

    Income inequality; Panel data; Personal Income;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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