Akademik Veri Yönetim Sistemi
Eighth International Conference on Economics (IceTea2022), Nevşehir, Türkiye, 1 - 04 Eylül 2022, ss.51
Distribution of income has always been one of the
most popular research topics and it has been the main focus of policy makers since it reflects
the well-being of the society. The extant theoretical literature argues that
equal distribution of income can be accomplished by financial development. This
study formalizes the idea of more productive banking sector induces more equal
distribution of income in a dynamic general equilibrium model and shows that the
implication of the model is supported by the cross-country data. It is argued
in the model that the bank with perfect productivity can transform all deposits
into loans. Deterioration of the banking productivity increases the labor cost of
transforming all the deposits into loans and widens the gap between borrowing
and lending interest rates. In this context, the positive relationship between
capital stock and banking productivity is also demonstrated in the model. The
model propounds that the ratio between the incomes of two individuals with
different wage rates as a measurement of income inequality increases with the
decrease of banking productivity parameter because the increase of capital
stock brings two incomes closer together.
Keywords: Dynamic General Equilibrium Model,
Financial Intermediation, Income Inequality.
JEL Codes: D63, E13, G20,.