Finance and Inequality

Staff Discussion Notes, January 17, 2020

Source details

The study examines empirical relationships between income inequality and three features of finance: depth (financial sector size relative to the economy), inclusion (access to and use of financial services by individuals and firms), and stability (absence of financial distress).
Using new data covering a wide range of countries, the analysis finds that the financial sector can play a role in reducing inequality, complementing redistributive fiscal policy.
Expanding the provision of financial services to low-income households and small businesses can serve as a powerful lever to help create a more inclusive society.
If not well managed, the financial sector can amplify inequalities.

Features analyzed: financial depth, financial inclusion, financial stability.
Key terminology preserved from the source: Gini coefficient, market Gini index, quintile income share, return on assets.
Coverage: "new data covering a wide range of countries" (as described in the source).

Finance can complement redistributive fiscal policy in reducing income inequality.
Policies that expand access to and use of financial services by low-income households and small businesses are highlighted as mechanisms to promote inclusion.
The analysis cautions that inadequate management of financial sector expansion can amplify inequalities, implying the need for stability-focused regulation alongside inclusion efforts.

Staff Discussion Note: "Finance and Inequality" by Martin Cihak and Ratna Sahay (January 17, 2020).

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