Too Much Finance and Top Income Concentration : A Dynamic Panel Data Analysis

This study investigates the effect of financial development on top income concentration and income inequality. We conducted a dynamic panel estimation using the GMM method for 171 countries, including developed and developing economies, over 1970-2017. Using linear regression, we find that financial development has a linear positive and significant effect on the top 1% and top 10% income share. In addition, nonlinear regression results report that private credit has a U-shape effect on top income concentration. This suggests that too much finance is beneficial for the top income group but detrimental to income distribution for the entire population