Financial access and inequality: A quantile assessment

Abstract

This paper examines finance - inequality relations by focusing on whether financial access mitigates income inequality at different levels of inequality. Applying quantile regressions to a cross-country data set of 73 countries, we find evidence that financial access serves as an inequality-mitigating factor only when income inequality of a country is low. In other words, for countries experiencing high inequality, emphasizing financial access in the development of finance may not reduce income inequality. From the analysis, we also find the significant role of trade openness and infrastructure in equalizing income distribution respectively at low and high inequality levels. The implications of these results are clear: there is no single policy that would fit all. In countries with low income inequality, the policy emphasis should be on widening financial access. Meanwhile, infrastructure development should be given priority in countries with high income inequality.