Abstract
Inequality in income distribution has increased in recent decades while households have seen their relationship with the financial sector deepen, raising the question of whether there is a causal relationship between the two phenomena. This paper studies how changes in house prices, private credit, and stock market capitalization affect income inequality. Dynamic panel data methods are used on an unbalanced panel of 57 advanced and emerging economies between 1998 and 2018. The results point to a positive impact of an increase in these variables on both the Gini coefficient of disposable income and the share of top incomes. Overall, the evidence indicates that the development of the financial sector and its consequent extension to households has been a driver of income inequality. The results are robust to different measures of house prices, different econometric specifications, and control variables.
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Notes
The group with annual growth rate of real house prices above average includes Australia, Belgium, Brazil, Canada, Chile, Colombia, Estonia, Iceland, India, Lithuania, Malta, Mexico, New Zealand, Norway, Peru, Philippines, Russia, Serbia, South Africa, Sweden, Turkey, and United Kingdom.
In addition, the models were estimated including real and nominal house price indexes obtained from the last quarter of the year. These results did not produce noteworthy differences and are available upon request.
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Acknowledgements
The authors thank two anonymous referees and Nauro F. Campos (Editor of Comparative Economic Studies) for their helpful and constructive comments and suggestions in the review process. The authors are the only ones responsible for any errors or omissions.
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Fundação para a Ciência e Tecnologia, under Grant UIDB/00315/2020, is gratefully acknowledged.
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Both authors developed the idea and wrote and edited the article. S.V. reviewed related literature, estimated the econometric model, and discussed the results. F.C. organized the data and collected the relevant materials.
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Appendix 1: List of countries
Appendix 1: List of countries
Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong-Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Morocco, Netherlands, New Zealand, Norway, Peru, Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, UK, USA (Tables 11, 12).
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Vale, S., Camões, F. Households’ Exposure to the Financial Sector as a Driver of Inequality: An Analysis of Advanced and Emerging Economies. Comp Econ Stud 65, 362–402 (2023). https://doi.org/10.1057/s41294-022-00200-8
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DOI: https://doi.org/10.1057/s41294-022-00200-8