Financialization and Income Inequality: A Dynamic Panel Data Analysis on Turkey and European Union

Abstract

Financialization; It refers to a process that results in the structural transformation of households and companies, economies and states under the leadership of financial actors and markets. The effects of financialization on income inequality can be analyzed using different proxy variables in the context of financial and non-financial institutions and the household sector. This study focuses on the relationship between income inequality and financialization in the European Union and Turkey. In this context, the effects of the financialization trend of financial institutions and the household sector on income inequality were investigated. For the 2000-2020 period, dynamic panel data analysis was carried out in line with Arellano and Bover/ Blundell and Bond System Generalized Moments Estimator (SYS-GMM). According to the results,, the increase in the share of domestic loans given to the private sector by the banks, which is the proxy variable representing the financial sector, in GDP, and the increase in the share of the loans given by all sectors to the household, which is the proxy variable representing the household sector, and the non-profit organizations that support the household, in GDP increase income inequality. increases. The increase in the share of loans extended to the non-financial and household sectors in GDP reduces income inequality with a lag.