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Financialization, household debt and income inequality: Empirical evidence

Financialization, household debt and income inequality: Empirical evidence
Financialization, household debt and income inequality: Empirical evidence

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 financialization on income inequality, remains scant and inconclusive. Using data for 33 countries over 1996–2015, we provide evidence that of the three financialization dimensions - of the financial, nonfinancial and household sectors - only household financialization exerts a positive and robustly significant impact on income inequality. Re-estimations by system generalized-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 financialization dimensions. Following disaggregation of household financialization 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.

financial sector, financialization, household debt, income inequality, non-financial sector
1076-9307
De Vita, Glauco
002fc6bf-e5ed-4a13-8993-0ce5e1fc2005
Luo, Yun
2ac0f228-573d-43e7-b309-1529b6f3d174
De Vita, Glauco
002fc6bf-e5ed-4a13-8993-0ce5e1fc2005
Luo, Yun
2ac0f228-573d-43e7-b309-1529b6f3d174

De Vita, Glauco and Luo, Yun (2020) Financialization, household debt and income inequality: Empirical evidence. International Journal of Finance & Economics. (doi:10.1002/ijfe.1886).

Record type: Article

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 financialization on income inequality, remains scant and inconclusive. Using data for 33 countries over 1996–2015, we provide evidence that of the three financialization dimensions - of the financial, nonfinancial and household sectors - only household financialization exerts a positive and robustly significant impact on income inequality. Re-estimations by system generalized-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 financialization dimensions. Following disaggregation of household financialization 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.

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Final_IJFE_accepted_paper_18_June_2020 - Accepted Manuscript
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More information

Accepted/In Press date: 18 June 2020
e-pub ahead of print date: 3 August 2020
Keywords: financial sector, financialization, household debt, income inequality, non-financial sector

Identifiers

Local EPrints ID: 442167
URI: http://eprints.soton.ac.uk/id/eprint/442167
ISSN: 1076-9307
PURE UUID: 92e8da11-0640-463e-9dbc-336056f73adf
ORCID for Yun Luo: ORCID iD orcid.org/0000-0001-8409-366X

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Date deposited: 08 Jul 2020 16:30
Last modified: 18 Jun 2022 04:01

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Contributors

Author: Glauco De Vita
Author: Yun Luo ORCID iD

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