Working Paper: CEPR ID: DP15014
Authors: Jon Frost; Leonardo Gambacorta; Romina Gambacorta
Abstract: This paper analyses the role of financial development and financial technology in driving inequality in (returns to) wealth. Using micro data from the Survey on Household Income and Wealth (SHIW) conducted by the Bank of Italy for the period 1991-2016, we find evidence of the “Matthew effect" - a capacity of wealthy households to achieve higher returns than other households. With an instrumental variable approach, we find that financial development (number of bank branches) and financial technology (use of remote banking) both have a positive association with households’ financial wealth and financial returns. While households of all wealth deciles benefit from the effects of financial development and financial technology, these benefits are larger when moving toward the top of the wealth distribution. Still, the economic significance of this gap fell in the last part of the sample period, as remote banking became more widespread.
Keywords: inequality; financial development; banks; financial technology; fintech
JEL Codes: G10; G21; O15; D63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial development (number of bank branches) (O16) | financial wealth (G51) |
| financial technology (remote banking usage) (G21) | financial wealth (G51) |
| financial development (number of bank branches) (O16) | rate of returns on financial wealth (G19) |
| financial technology (remote banking usage) (G21) | rate of returns on financial wealth (G19) |
| financial development (number of bank branches) + financial technology (remote banking usage) (O16) | wealth inequality (D31) |
| financial development (number of bank branches) + financial technology (remote banking usage) (O16) | gap in returns over time (G17) |