29. Oktober 2024

Schumpeter BSoE Macro Seminar

Finance and Inequality: A Tale of Two Tails

Termin

29. Oktober 2024
16:00-18:00 c.t.

Ort

Elinor Ostrom Hall
DIW Berlin
Mohrenstr. 58
10117 Berlin

Sprecher*innen

Alexander Ludwig (European University Institute - EUI, Florence)
The Schumpeter-BSoE-Seminar is the Berlin Macro and Economic History seminar. It is jointly organized by Michael Burda (HU Berlin), Britta Gehrke (FU Berlin), Frank Heinemann (TU Berlin), Alexander Kriwoluzky (DIW Berlin), Josefin Meyer (DIW) and Nikolaus Wolf (HU Berlin).

Speaker

Alexander Ludwig (European University Institute - EUI, Florence)

Abstract:
We estimate the effects that the different financial deregulations in the U.S. have had on the country’s income distribution. We find that the different reforms have moved inequality in drastically different directions. On the one hand, during the late 1970s and early 1980s, the removal of intra- and inter-state branching restrictions and the elimination of state-varying rates ceilings decreased inequality, as they mostly enhanced the incomes of workers in the lower tail of the income distribution. On the other hand, the repeal of the Glass-Steagall Act in 1999 substantially increased inequality, as it mostly –and by large amounts– increased the incomes of workers in the upper tail of the distribution. To explore the mechanisms underlying the different effects, we also examine the responses within and across individuals in different age groups, and compare finance vs non-finance workers. Our findings indicated that models based solely on capital skill complementarities (CSC) are insufficient because they would imply similar responses to all reforms. We construct a model that emphasizes the endogenous changes in the heterogeneous access (and choices) of households’ financial products. The model naturally explains how the different deregulations impacted the opposite tails of the income distribution by capturing the changes in the financial markets available to households of different incomes and characteristics.

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