Inequality in income distribution has increased in recent decades while households have seen their relationship with the financial sector deepen, raising the question of whether there is a causal relationship between the two phenomena. This paper studies how changes in house prices, private credit, and stock market capitalization affect income inequality. Dynamic panel data methods are used on an unbalanced panel of 57 advanced and emerging economies between 1998 and 2018. The results point to a positive impact of an increase in these variables on both the Gini coefficient of disposable income and the share of top incomes. Overall, the evidence indicates that the development of the financial sector and its consequent extension to households has been a driver of income inequality. The results are robust to different measures of house prices, different econometric specifications, and control variables.

The authors thank two anonymous referees and Nauro F. Campos (Editor of Comparative Economic Studies) for their helpful and constructive comments and suggestions in the review process. The authors are the only ones responsible for any errors or omissions.

Inequality,Households,House prices,Private credit,Stock market capitalization

• Economics and Business - Social Sciences