Bank Regulations and Income Inequality: Empirical Evidence*

Abstract

This paper provides cross-country evidence that variations in bank regulatory policies result in differences in income distribution. In particular, the overall liberalization of banking systems decreases income inequality significantly. However, this effect becomes insignificant for countries with low levels of economic and institutional development and for market-based economies. Among liberalization policies, credit and interest rate controls have the most significant negative effect on inequality. Privatizations and liberalization of international capital flows also decrease income inequality; the latter also increases the income share of the relatively poor. In contrast, liberalization of securities markets increases income inequality substantially. These findings show that bank regulations have a significant effect on real economic outcomes as well as financial stability.

Does the impact of financial liberalization on income inequality depend on financial development? Some new evidence

“…Financial liberalization refers to a reduction in the role of government and an increase in the role of financial markets (Abiad, Oomes, and Ueda 2008). Using the financial liberalization index of Abiad, Detragiache, and Tressel (2010), some recent studies (Agnello, Mallick, and Sousa 2012;Delis, Hasan, and Kazakis 2014;Li and Yu 2014) report that financial liberalization reduces income inequality but Jaumotte and Osorio Buitron (2015), Naceur and Zhang (2016) and de Haan and Sturm (2017) conclude that financial liberalization increases inequality.…”

Unbundling interest rate and bank credit nexus on income inequality: structural break analysis from Nigeria

“…Secondly, by modifying the transmission mechanism through which funding affects income inequality. The finance-inequality literature posits that the interest rate has a direct relationship with income inequality (Delis et al, 2014). Contrarily, this study hypotheses that rather than a direct link, the interest rate should have an indirect relationship to income inequality.…”

Income Inequality, Globalization, and Country Risk: A Cross-Country Analysis

“…For the political angle, it is highlighted the legal system and institutions are essential for income distribution (Glaeser, Scheinkman, & Shleifer, 2003;Tebaldi & Mohan, 2010). In addition, several studies suggest that institutional quality may change the relationship between financial development, liberalization and income disparity (Delis, Hasan, & Kazakis, 2014;De Haan & Sturm, 2017). In summary, while the impacts of such country risk on income disparity have been investigated, previous studies have not considered the conditional effects of country risk when analyzing the impact of globalization on inequality.…”