OECD Economics Department Working Papers

ISSN: 
1815-1973 (online)
http://dx.doi.org/10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Finance and income inequality in OECD countries You or your institution have access to this content

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Author(s):
Oliver Denk1, Boris Cournède1
Author Affiliations
  • 1: OECD, France

17 June 2015
Bibliographic information
No.:
1224
Pages:
41
http://dx.doi.org/10.1787/5js04v5jm2hl-en

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Using data from OECD countries over the past three decades, this paper shows that financial expansion has fuelled greater income inequality. Higher levels of credit intermediation and stock markets are both related with a more unequal distribution of income. Greater income inequality may not reduce the welfare of even the lowest earners so long as their income growth is not negatively affected. Numerical simulations based on a novel empirical methodology indicate, however, that the financial expansion has put a brake on the income growth of many low- and middle-income households. No evidence is found that financial crises explain the observed relationships. While causality is difficult to establish beyond doubt, the paper finds credit patterns which are inconsistent with reverse causality running from greater income inequality to more household borrowing.
Keywords:
financial crisis, finance, income inequality, stock market, Gini coefficient, income growth
JEL Classification:
  • D14: Microeconomics / Household Behavior and Family Economics / Household Saving; Personal Finance
  • D63: Microeconomics / Welfare Economics / Equity, Justice, Inequality, and Other Normative Criteria and Measurement
  • E21: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Consumption ; Saving ; Wealth
  • E51: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Money Supply ; Credit ; Money Multipliers
  • G01: Financial Economics / General / Financial Crises
  • G2: Financial Economics / Financial Institutions and Services
 
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