The win-win of financial sector reform

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A new World Bank working paper looks at the relationship between the financial sector and inequality. Don't care for redistributive social policies? Then financial sector reform is the way to go (or so say the authors): finance and redistributive policies. Many theories motivate redistributive policies as a mechanism for de-linking an individual’s opportunities from parental wealth. One problem with redistributive policies, however, is that they create disincentives to work and save, though researchers debate the actual magnitudes of these disincentive effects. These tensions between efficiency and equity, however, vanish when focusing on financial sector reforms. Financial developments that expand individual economic opportunity create positive, not negative incentive effects, and avoid the adverse repercussions associated with attempts to equalize outcomes. Financial development both boosts efficiency and the equality of opportunity.


Ryan Hahn

Operations Officer

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