Financial structure and income inequality

Abstract

We empirically investigate whether financial structures affect income inequality. Using panel data for 97 economies covering above two decades preceding the FinTech surge we uncover a non-monotonic relationship. More finance reduces income inequality up to a certain point, beyond which inequality rises if finance expands via market-based financing, while it does not when finance grows via bank lending. The finance-inequality relationship is not structurally affected by the occurrence of crises, while it is reinforced in countries featuring a higher degree of financial openness. Financial deepening always reduces inequality when it takes the form of improved financial access.