1 / 8

Banking Deregulation Impact on Income Distribution

This paper discusses the effects of banking deregulation on income distribution, exploring increased competition, reduced discrimination, and changes in market dynamics. It shows how deregulation can lower income inequality, leading to shifts in wages and proprietor's income.

josephinec
Download Presentation

Banking Deregulation Impact on Income Distribution

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Bank Deregulation and Income Distribution Discussion by: Philip E. Strahan Boston College March 2007

  2. What does banking deregulation do? • Effects on banking sector • Lowers entry barriers & more competition • Weeding out of inefficient banks • Increases M&A rate • Reduces presence of small banks • More integrated markets regionally & nationally • Effects on the real economy • Faster overall growth • More entry and more small firms (more competition in non-financial sector) • Less idiosyncratic economic volatility / better risk sharing

  3. Why would deregulation affect income distribution? • More competition  less labor-market discrimination • Black & Strahan (2001) report evidence in banking • Implication: Minorities, women may benefit most from banking deregulation, so lower income inequality • More creation of new firms • Not clear how growth or business fluctuations affects income distribution • In general, paper needs more discussion of theory or channels through which reform might reduce inequality

  4. This paper:US deregulation lowered income inequality • Wages increase more for women than men after reform • Consistent with competition / discrimination channel • Gini coefficient falls after reform • More for women. Why? • More for proprietor’s income

  5. Extension 1: More details on banking competition • Local market concentration • Exploit variation at MSA level • Interact with deregulation indicators • Other exogenous changes in concentration from large-bank mergers • Germaise & Moskowitz (2006) • Branching v. interstate banking reform • Unit banking v. limited branching

  6. Extension 2: Look at other changes in banking • Small bank market presence falls sharply after deregulation • Efficiency v. market power • What matters? • Mergers & Acquisitions

  7. Extension 3: Explore Dynamics • How long for income distribution to change? • Does income distribution change before deregulation? After? Lags • Important to understand causality

  8. Extension 4:What happens along different points in the wage distribution? • 25th, median, 75th percentiles? • Who loses (besides small bankers)? • Age, sex, race, education • Do young benefit relative to old? • Do minorities benefit relative to non-minorities? • College v. non-college • Industry effects • Bigger effects where finance matters more (a la Rajan & Zingales?)

More Related