Banking and income inequality of the American community: an analysis

Lijing Du,Daniel Singer,Michail Dewally,Ying Ying Shao

doi:10.21511/bbs.11(1).2016.06

Abstract

Community banks in American urban areas are found to have a significant effect on the local distribution of income. Banking activity is seen to both decrease inequality by increasing the median level of income and simultaneously increase inequality by increasing the size of either tail of the income distribution. The net effect of banks providing liquidity to the American local economy and increasing access to the banking infrastructure is to decrease income inequality in these communities

Highlights

This paper examines the impact of community banking activities on the complex relationships between income levels and its distribution in urban American counties
The contribution of this paper lies in specifying the linkages between banking activity and income creation and how those linkages impact the local distribution of income
Recent concerns about the current growth in income inequality have resulted in politicians and social leaders calling for a reduction in income inequality, but this concern has been largely rhetorical

Summary

Banking and inequality

Piketty (2013) has found that over the long-term the return on capital in developed countries is greater than the rate of economic growth resulting in an increase in income inequality. Other researchers can find no consistent relationship between inequality and growth Michail Dewally, Dr, Assistant Professor of Finance, Towson University, USA. Ying Ying Shao, Dr, Assistant Professor of Finance, Towson University, USA. A considerable body of research has been unable to confirm a positive relationship between economic growth and equality as a result of the complexity of the issues involved (Dollar et al, 2015). In a list of 141 countries, the Gini ratio ranged from .632 in Lesotho to .230 in Sweden with the United States 41st in the distribution (CIA, 2014). In 807 counties covered in 2013 U.S Census American Community Survey in 2013 the average Gini ratio for counties was .449 with a standard deviation of .036

Literature

The banking sector and income growth

Methodology

Findings

Conclusions