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Jauch, Sebastian and Watzka, Sebastian (2011): Financial development and income inequality. CESifo working paper: Fiscal Policy, Macroeconomics and Growth,

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We analyze the link between financial development and income inequality for a broad unbalanced dataset of 138 developed and developing countries over the years 1960 to 2008. Using credit-to-GDP as measure of financial development, our results reject theoretical models predicting a negative impact of financial development on income inequality measured by the Gini coefficient. Controlling for country fixed effects and GDP per capita, we find that financial development has a positive effect on income inequality. These results are robust to different measures of financial development.

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