Inequality, SDG10 and the financial system

Abstract

Non-technical summary One of the Sustainable Development Goals, number 10, is about reducing inequality within and between countries. This paper argues that the existing structure of the (international) financial system is, for various reasons, one of the determinants of (growing) inequality. This should receive more attention. Technical summary Conventional wisdom suggests that credit creation tends to reduce income inequality by enhancing business opportunities. But in many countries, banks have significantly increased credit supply to mortgages as compared to business (the 'debt shift'). The data suggest that this is one factor behind income and wealth inequality. Plausible causal mechanisms are feedback loops that accumulate money in the hands of bankers, fund managers and business CEOs. Inequality is further aggravated by tax evasion, available to the very rich. The way the financial system operates nowadays thus systematically puts the poor at a disadvantage. More research is needed to expose these mechanisms.