Financialization, household debt and income inequality: Empirical evidence

Abstract

AbstractThe aftermath of the most recent financial crisis has prompted a surge of interest in the impact of finance capitalism on national economies and individual livelihoods. Yet, research on the impact of financialization on income inequality, remains scant and inconclusive. Using data for 33 countries over 1996–2015, we provide evidence that of the three financialization dimensions ‐ of the financial, nonfinancial and household sectors ‐ only household financialization exerts a positive and robustly significant impact on income inequality. Re‐estimations by system generalized‐methods‐of‐moments (SYS‐GMM) and difference‐GMM as well as alternative income inequality measures, confirm the significant, positive impact of household indebtedness over all other financialization dimensions. Following disaggregation of household financialization into its three main components (mortgage, consumer and other purposes debt), we also uncover that it is increasing levels of household debt aimed at sustaining living standards that is accountable for the positive impact on income inequality, whilst mortgage debt reduces it.