Inequality, Financial Development and Government: Evidence from Low-Income Developing Countries

Majeed, Dr. Muhammad Tariq (2013): Inequality, Financial Development and Government: Evidence from Low-Income Developing Countries.

Abstract

The purpose of this study is to examine the impact of financial and economic development on cross-country income inequality using a panel data set from 50 low-income developing counties over a long period 1970-2008. The results show that financial development helps in reducing inequalities, however a non-monotonic relationship between financial development and inequality does not hold. The study finds a non-monotonic relationship between inequality and level of economic development, thus this study supports Kuznets inverted-U hypothesis. The government emerges as a major player in reducing income inequalities as its role is significant in all models. Policy makers should primarily focus on achieving the higher levels of economic development to reduce increasing inequalities. Since financial development, reduces inequalities irrespective of its level, policy makers need to focus more on improvements in financial reforms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inequality; Financial Development; Government; Developing Countries
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; H - Public Economics > H1 - Structure and Scope of Government > H10 - General

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