Financial development and inequality: Brazil 1985–1994 |
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Authors: | Manoel Bittencourt |
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Institution: | (1) Department of Economics, University of Pretoria, Lynnwood Road, Pretoria, 0002, South Africa |
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Abstract: | We examine the impact of financial development on earnings inequality in Brazil in the 1980s and first half of the 1990s.
The evidence—based initially on time-series, and then on the relatively novel panel time-series data and analysis—shows that
financial development had a significant and robust effect in reducing inequality during the period. We suggest that this is
not only because the poorer can invest the acquired credit in either short or long-term productive activities, but also because
those with access to financial markets can insulate themselves, via a process of financial adaptation, against recurrent poor
macroeconomic performance, which is exemplified in Brazil by high rates of inflation. The main implication of the results
is that a deeper and more active financial sector alleviates the high inequality seen in Brazil without the need for distortionary
taxation. |
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Keywords: | |
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