Financial Market Access and Capital Income Inequality
Year: 2008 Volume: 58 Issue: 11 -12 Pages: 554-575
Abstract: This paper explores the effect of broadening financial market access on inequality. I characterize in a parsimonious model of endogenous market participation how capital income inequality depends on financial market costs. A Kuznets curve type of relationship is uncovered under DARA utility. Data on the contribution of capital income to inequality (CKI) in eleven countries is presented against a measure of equity trading costs. Consistently with the model, during the last few decades of improving market access, the CKI has tended to increase where trading costs have been high, and to decrease where these costs have been low enough. The results imply that financial liberalization may have differential effects for inequality in advanced and in emerging economies.
JEL classification: D14, D31
Keywords: income inequality, household portfolio, financial liberalization
RePEc: http://ideas.repec.org/a/fau/fauart/v58y2008i11-12p554-575.html
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