Does finance alter the relation between inequality and growth?

Matías Braun; Francisco Parro; Patricio Valenzuela

doi:10.1111/ecin.12581

Does finance alter the relation between inequality and growth?

Matías Braun, Francisco Parro, Patricio Valenzuela

Research output: Contribution to journal › Article › peer-review

24 Scopus citations

Abstract

This paper introduces a model in which greater inequality reduces growth in economies with low levels of financial development but that this effect is attenuated in economies with more developed systems. The model also predicts that individuals in economies with developed financial markets have a higher tolerance to inequality. Using a panel dataset that covers a large number of countries, this paper shows empirical evidence that is consistent with the main predictions of the model. Overall, this paper's major findings highlight that some of the pernicious effects of inequality can be attenuated by improving access to credit. (JEL D3, E6, P1, O4, I2).

Original language	English
Pages (from-to)	410-428
Number of pages	19
Journal	Economic Inquiry
Volume	57
Issue number	1
DOIs	https://doi.org/10.1111/ecin.12581
State	Published - Jan 2019
Externally published	Yes

Bibliographical note

Funding Information:
∗We thank all participants at the 21st Annual Meeting of the Latin American and Caribbean Economic Association, the Annual Meeting of the Chilean Economic Society, as well as participants at the Universidad Torcuato Di Tella and the Universidad Adolfo Ibáñez workshops for their useful suggestions. We particularly thank the editor, Areendam Chanda, and one anonymous referee for their comments and suggestions. P.V. wishes to thank the Institute for Research in Market Imperfections and Public Policy, ICM IS130002 (Ministerio de Economía, Fomento y Turismo), for their financial support. Braun: Professor, Business School, Universidad Adolfo Ibáñez, Santiago, 7910000, Chile. Phone +56 (2) 2331 1000, Fax +56 (2) 2278 4413, E-mail matias.braun@ uai.cl Parro: Professor, Business School, Universidad Adolfo Ibáñez, Santiago, 7910000, Chile. Phone +56 (2) 2331 1000, Fax +56 (2) 2278 4413, E-mail francisco.parro@ uai.cl Valenzuela: Professor, Department of Industrial Engineering, Universidad de Chile, Santiago, 7550000, Chile. Phone +56 (2) 2978 4050, Fax +56 (2) 2689 7895, E-mail [email protected] Economic Inquiry (ISSN 0095-2583) Vol. 57, No. 1, January 2019, 410–428

Publisher Copyright:
© 2018 Western Economic Association International

Keywords

Income-distribution
Economic-growth
Causality

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1111/ecin.12581

Cite this

@article{f57b3b57ec1d4991b53cde0189523765,

title = "Does finance alter the relation between inequality and growth?",

abstract = "This paper introduces a model in which greater inequality reduces growth in economies with low levels of financial development but that this effect is attenuated in economies with more developed systems. The model also predicts that individuals in economies with developed financial markets have a higher tolerance to inequality. Using a panel dataset that covers a large number of countries, this paper shows empirical evidence that is consistent with the main predictions of the model. Overall, this paper's major findings highlight that some of the pernicious effects of inequality can be attenuated by improving access to credit. (JEL D3, E6, P1, O4, I2).",

keywords = "Income-distribution, Economic-growth, Causality",

author = "Mat{\'i}as Braun and Francisco Parro and Patricio Valenzuela",

note = "Funding Information: ∗We thank all participants at the 21st Annual Meeting of the Latin American and Caribbean Economic Association, the Annual Meeting of the Chilean Economic Society, as well as participants at the Universidad Torcuato Di Tella and the Universidad Adolfo Ib{\'a}{\~n}ez workshops for their useful suggestions. We particularly thank the editor, Areendam Chanda, and one anonymous referee for their comments and suggestions. P.V. wishes to thank the Institute for Research in Market Imperfections and Public Policy, ICM IS130002 (Ministerio de Econom{\'i}a, Fomento y Turismo), for their financial support. Braun: Professor, Business School, Universidad Adolfo Ib{\'a}{\~n}ez, Santiago, 7910000, Chile. Phone +56 (2) 2331 1000, Fax +56 (2) 2278 4413, E-mail matias.braun@ uai.cl Parro: Professor, Business School, Universidad Adolfo Ib{\'a}{\~n}ez, Santiago, 7910000, Chile. Phone +56 (2) 2331 1000, Fax +56 (2) 2278 4413, E-mail francisco.parro@ uai.cl Valenzuela: Professor, Department of Industrial Engineering, Universidad de Chile, Santiago, 7550000, Chile. Phone +56 (2) 2978 4050, Fax +56 (2) 2689 7895, E-mail [email protected] Economic Inquiry (ISSN 0095-2583) Vol. 57, No. 1, January 2019, 410–428 Publisher Copyright: {\textcopyright} 2018 Western Economic Association International",

year = "2019",

month = jan,

doi = "10.1111/ecin.12581",

language = "English",

volume = "57",

pages = "410--428",

journal = "Economic Inquiry",

issn = "0095-2583",