Publisher:
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract:
What are the effects of local credit institutions on the distribution of income? Why should local banking development matter for the level of inequality? We focus on how different dimensions of banking development and other characteristics of 103 provinces in Italy affect the level of inequality. Using panel estimation and data over the period 2006-2010, we find that local banking development has a significant negative effect on the Gini coefficient and other measures of inequality, i.e. higher banking development is associated with lower inequality. When considering Italian macro-areas sub-samples (North, Center, South), the result is significant only for the North; thus suggesting the existence of a nonlinear relationship between financial development and income inequality, depending on the level of development.