The Impact of Financial Development on Income Inequality in Turkey: A Comparative Analysis for Different Income Groups

Abstract

Nowadays, income inequality is one of the most fundamental economic problems faced by not only developing countries but also developed countries. Income inequality, which causes not only economic but also important social problems, is a multidimensional issue affected by many factors. One of the important factors affecting income inequality is the level of financial development of countries. In this study, the effect of financial development on income inequality in Turkey was examined by using ARDL (Autoregressive Distributed Lag) bound test method using annual data for the period 1987-2019. The financial development index developed by the International Monetary Fund (IMF) was used to represent financial development, and the shares of upper, middle and lower income groups from the national income were used to represent income inequality. As a result of the analysis, it was determined that while the share of the highest income group from income increased depending on financial development, the share of the middle income group from income decreased. The existence of a cointegration relationship between the share of the lowest income group from the income and financial development could not be determined. When the analysis findings are evaluated as a whole, the results indicate that financial development increases income inequality in Turkey and contain evidence supporting the positive linear hypothesis.