Financialization, household debt and income inequality: Empirical evidence

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    Abstract

    The aftermath of the most recent financial crisis has prompted a surge of interest in the impact of finance capitalism on national economies and individual livelihoods. Yet, research on the impact of financialisation on income inequality, remains scant and inconclusive. Using data for 33 countries over 1996-2015, we provide evidence that of the three financialisation dimensions - of the financial, nonfinancial and household sectors - only household financialisation exerts a positive and robustly significant impact on income inequality. Re-estimations by system generalised-methods-of-moments (SYS-GMM) and difference-GMM as well as alternative income inequality measures, confirm the significant, positive impact of household indebtedness over all other financialisation dimensions. Following disaggregation of household financialisation into its three main components (mortgage, consumer and other purposes debt), we also uncover that it is increasing levels of household debt aimed at sustaining living standards that is accountable for the positive impact on income inequality, whilst mortgage debt reduces it.
    Original languageEnglish
    Article numberIJFE1886
    Pages (from-to)1917-1937
    Number of pages21
    JournalInternational Journal of Finance and Economics
    Volume26
    Issue number2
    Early online date3 Aug 2020
    DOIs
    Publication statusPublished - Apr 2021

    Keywords

    • Financialisation
    • Income inequality
    • financial sector
    • Non-financial sector
    • Household debt

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