How Finance Affects Income Inequality

There is mounting evidence that income inequality and disparities in wealth have been rising in advanced economies in the recent decades. Using data on advanced and emerging economies, this column investigates the link between an economy’s financial structure—that is, the mix of bank-provided versus market-provided funds—and income inequality. Results show that the relationship is not monotonic. More finance reduces income inequality up to a point, but beyond that point inequality rises, especially if finance is expanded via market-based financing.    

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Loose Policies Around Close Elections Highlight the Political Limits of Macroprudential Regulation

What can policymakers do to prevent future financial crises? An emerging consensus holds that so-called macroprudential regulation is key: policies that aim to mitigate risks to the financial system as a whole. In a recent paper, Karsten Müller of Princeton shows that such policies were systematically loosened in the run-up to two-hundred seventeen elections across 58 countries. This raises the question of whether regulators can, in practice, withstand political pressures.

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