Inequality and the finance you know: does economic literacy matter?

This paper considers the relationship between financial markets and income distribution from a perspective that emphasizes the role of people’s ability to use financial markets and their instruments in helping reduce income inequality. Using cross-section and panel regression techniques, it documents in a sample of advanced and developing countries that income inequality grows less where economic literacy is higher, while the direct association between financial development and inequality usually referred to as the “finance-inequality nexus” is not significant in the medium term nor in long cross-sectional regressions controlling for the level of economic literacy.