Financial development and top income shares in OECD countries

Anjan K. Saha, Vinod Mishra, Russell Smyth

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Abstract

We examine the causal impact of financial development (FD) on top income shares for a panel of 14 OECD countries—five Anglo-Saxon countries, eight continental European countries, and Japan—over a 110-year period. In our main General Method of Moments estimates, we find that a 1-percentage-point change in FD increases the top 1% income share by 0.2%. In distribution terms, a 1-SD incr=ease in FD increases the top 1% income share by around 0.4 of an SD. The effects are robust to various measures of top income shares and FD and alternative estimation techniques, including nonparametric estimation. FD is typically viewed in positive terms in that it makes it easier to access credit and facilitates economic growth. Our results are important because they contribute to understanding of the potential negative effects of FD.

Original languageEnglish
Pages (from-to)952-978
Number of pages27
JournalSouthern Economic Journal
Volume87
Issue number3
DOIs
Publication statusAccepted/In press - 2020

Keywords

  • financial development
  • top income shares

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