Financialization and Income Inequality in 16 More-Developed Countries

• In Event: 309 - Regular Session. Globalization and Inequality

Abstract

The “Great U-turn” of income inequality in more-developed countries has been attributed to globalization and labor market trends, but a related trend – financialization – has largely been neglected. I examine the effects of financialization on household income inequality in an unbalanced panel of 16 more-developed
countries over the period 1970-2002. A fixed-effects model is used, and controls are included for globalization, labor market characteristics, and internal development. Results show that financialization has a strong, positive, highly-significant effect on income inequality. Moreover, including financialization attenuates the effects of globalization and time indicator variables and improves overall model fit.

Author

• Daniel Thompson, Johns Hopkins University