Income distribution and the size of the financial sector

CSWP 15 (December 2015)

Author Carlo Panico and Antonio Pinto

Keywords Income distribution, growth, financial industry, financialization, multi-sectorial models

JEL D30, E10, E44, G20

The paper deals with the influence of the size of financial industry on income distribution. In opposition to Piketty’s position, it argues that the wage share is influenced by changes in the size of the sectors of the economy, by the input composition of the productive structure and by the ability of the workers to capture the increases in productivity. The process of financialization experienced in the recent decades has affected these three elements. Among other things, it has enhanced the ability of the banking industry to affect the formation of monetary policy and legislation, which in turn can have had some bearing on the workers’ ability to appropriate the increases in productivity. After describing Piketty’s interpretation of the rise in inequality and discuss his views on the theories of distribution, the paper illustrates different representations of the financial sector proposed by the literature, underlining the relevance of considering this sector as an industry. By following these lines the paper describes how an enlarged size of the banking industry can increase inequality.

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