Financial development and income inequality: evidence from China

This article explored the long-run relationship between financial development and income inequality at the provincial level. In contrast with the intuitive hypothesis that financial deepening helps reduce the inequality, the provincial data reveal that financial deepening cannot improve the inequality. Instead, it makes the inequality worse. Since this result implies that financial development can increase GDP per capita and also increase income inequality, China is not passing the turning point of the inverted U-shaped curve yet. This is consistent to the fact that China is a developing country.

Automated summary

This study reveals that financial deepening does not necessarily decrease income inequality, but may worsen it instead. China, as a developing country, has not yet reached the turning point of income inequality according to the inverted U-shaped curve.