The Effect of Financial Development on Income Inequality: Does Gender Matter?

Abstract

Over the past three decades, income inequality has increased in most OECD countries, while the same period has witnessed financial development and a declining gender gap in employment. Numerous factors may intensify income inequality. And, the effect of financial development on income inequality has been discussed intensely by scholars and policy makers. But, there is still no consensus on that relationship. This study examines the association between financial development and income inequality, and how female labor force participation affects this relationship for a panel data set of OECD countries over the period 1985-2014. The results show that financial development reduces income inequality. However, the impact of female labor force participation on that relationship is complicated, and improvements in female labor force participation worsen the equalizing effects of financial development.