Template-Type: ReDIF-Paper 1.0
Author-Name: Jon Frost
Author-X-Name-First: Jon
Author-X-Name-Last: Frost
Author-Name: Leonardo Gambacorta
Author-X-Name-First: Leonardo
Author-X-Name-Last: Gambacorta
Author-Name: Romina Gambacorta
Author-X-Name-First: Romina
Author-X-Name-Last: Gambacorta
Title: The Matthew effect and modern finance: on the nexus between wealth inequality, financial development and financial technology
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 towards 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.
Length: 51 pages
Creation-Date: 2020-07
File-URL: https://www.bis.org/publ/work871.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work871.htm
File-Format: text/html
Number: 871
Classification-JEL: G10, G21, O15, D63
Keywords: inequality, financial development, banks, financial technology, fintech
Handle: RePEc:bis:biswps:871