Banking Development, Economic Structure and Income Inequality

32 Pages Posted: 6 Nov 2013 Last revised: 8 Jul 2016

See all articles by Alexandra D'Onofrio

Alexandra D'Onofrio

Luiss Guido Carli University - Arcelli Center for Monetary and Financial Studies (CASMEF)

Raoul Minetti

Michigan State University - Department of Economics

Pierluigi Murro

Luiss Guido Carli University - Department of Business and Management

Date Written: July 5, 2016

Abstract

Using rich data from the Italian local credit markets (provinces), this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link. Exploiting the Italian historical banking regulation to instrument for the local presence of bank branches, we find that local banking development mitigates income inequality and poverty. However, the finance-inequality nexus manifests itself only in relatively advanced areas, suggesting important non-linearities. When we study the structural channels of influence, we obtain evidence that banking development can reduce inequality by affecting geographical mobility and urbanization, while it has modest effects through the development of material infrastructures and human capital.

Keywords: Income inequality; Financial development; Socioeconomic structure

JEL Classification: G21, G38, O15

Suggested Citation

D'Onofrio, Alexandra and Minetti, Raoul and Murro, Pierluigi, Banking Development, Economic Structure and Income Inequality (July 5, 2016). Available at SSRN: https://ssrn.com/abstract=2350165 or http://dx.doi.org/10.2139/ssrn.2350165

Alexandra D'Onofrio

Luiss Guido Carli University - Arcelli Center for Monetary and Financial Studies (CASMEF) ( email )

Viale Romania 32
Rome, 00197
Italy

Raoul Minetti (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7349 (Phone)
517-432-1068 (Fax)

Pierluigi Murro

Luiss Guido Carli University - Department of Business and Management ( email )

Via Salvini, 3
Rome, 00198
Italy

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