Income inequality and financialization: a not so straightforward relationship

Abstract

PurposeThe authors explore the impact of financialization on income inequality for a panel of 19 OECD countries over the period 2000–2017. The authors control for the effect of banking crises, credit market regulation and globalization, among other factors.Design/methodology/approachThe authors use three proxies for income inequality and four proxies for financialization. The authors employ a panel fixed effects approach using Driscoll and Kraay’s (1998) nonparametric covariance matrix estimator, which produces standard errors that are robust to general forms of cross-sectional dependence.FindingsThe authors provide evidence which to a great extent supports the view that the process of financialization has increased income inequality. In the disposable Gini specifications, two out of the four financialization measures are found to significantly contribute to rising inequality whilst in the specification with the market income Gini coefficient, three out of the four financialization proxies appear to adversely affect inequality. In the specification with the Gini coefficient based on manufacturing pay, the evidence is weak. Furthermore, trade unions appear to play a significant role in reducing inequality in two out of the three Gini specifications while the effect of credit market regulation is rather ambiguous.Originality/valueThe authors’ findings suggest a positive relationship between financialization and income inequality; however, the results depend on the proxies used to measure financialization and income inequality. The authors conclude that the process of financialization in triggering income inequality is complex and merits additional research.

The Labour Share, Government Expenditure and Income Inequality of Post-Soviet Countries

“…The recent literature on the decrease in labour shares has concentrated on examining various factors, including globalisation's influence (Decreus and Maarek 2008;Maarek 2012;Brada 2013;Kramarz 2017;van Treeck and Wacker 2020;Tian et al 2022), development of financial capitalism (Pariboni and Tridico 2019;Alexiou et al 2022;Khan et al 2022), high natural resource rents (Brada 2013;Al-Marhubi 2021), and technological and structural change (Briguglio and Vella 2016;Acemoglu and Restrepo 2018;Koh et al 2020). In the global economy, capital (especially portfolio investments) is becoming more mobile than labour, which lowers the bargaining power of workers in the home country because it takes into account the lower wages that are available in other countries where the owner of the financial or physical capital can move his production (Hummels et al 2014;Kramarz 2017;O'Mahony et al 2021;van Treeck and Wacker 2020;Diwan 2001;Braakmann and Brandl 2021).…”

The impact of trade unions and government party orientation on income inequality: evidence from 17 OECD economies

“…For each of the three measures of income inequality, we estimate three models that include union density (see Alexiou et al. , 2022; Aghion et al.…”

“…For each of the three measures of income inequality, we estimate three models that include union density (see Alexiou et al, 2022;Aghion et al, 2019) and include dummy variables that capture government party orientation with respect to economic policy. More specifically, Models 1 to 3 include dummy variables constructed with data from the Database of Political Institutions 2017 (Cruz et al, 2018): partyright is a dummy variable that takes the value 1 if the government party is defined as right (conservative, Christian democratic, right-wing) and 0 otherwise; partycentre takes the value 1 if the government party position can best be described as Centrist and 0 otherwise; and partyleft takes the value 1 if the government party is left (communist, socialist, social democratic, left-wing) and 0 otherwise.…”

Different experiences of Asian emerging‐market economies in the two major financial crises

“…This crisis spread and continued until 2009 with many banks going bankrupt. The link between crises and inequality is analysed for advanced economies in the recent literature (Alexiou et al, 2021; Cardaci, 2018; Matos, 2019; Perugini et al, 2015; Senner & Sornette, 2018; Stockhammer, 2012). The related studies show that bubble growth is a symptom of the crisis rather than a cause.…”