Income Inequality, Finance, and Space: A Cross-Country Analysis

To extend the controversial literature on the finance-inequality nexus, we examine the determinants of income inequality in 131 developed and developing economies, in the period 1991–2017. We consider a wide range of variables associated with domestic financial development, banking crises, and financial globalization, including financial secrecy and offshore wealth. In addition, we examine whether the spatial centralization of the financial sector is associated in any way with income inequality. The results show that the larger the size of the financial sector in a country, the higher the level of inequality. Financial globalization, in all its facets, also appears to contribute to inequality. These findings are particularly robust for developed economies. Our analysis also shows that aspects of finance aggravating inequality are positively associated with the degree of geographical centralization of the financial sector.