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http://dx.doi.org/10.13106/jafeb.2021.vol8.no11.0021

Financial Development, Income Inequality and the Role of Democracy: Evidence from Vietnam  

NGUYEN, Hung Thanh (Faculty of Economics, Binh Duong University, School of Public Finance, University of Economics Ho Chi Minh City)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.11, 2021 , pp. 21-29 More about this Journal
Abstract
The objective of this study is to see how a country's level of democracy impacts the relationship between financial development and income disparity. We argue that political regimes, supported by their degree of democracy, are important for various decentralization theories to predict the impact of financial development on income inequality. Our study tests this argument using Vietnam time series data for the period 2000-2020 through the ARDL model. The financial development variable is represented by five proxies, the income inequality variable is represented by the GINI coefficient and the role of democracy is represented by the Freedom House Index. Data serving for the study is taken from data sources with high reliability. The results of the study have strong evidence that (1) financial development has a positive impact on income inequality, (2) democratic government will reduce national income inequality. (3) And a higher degree of democracy tends to mitigate the positive impact of financial development on income inequality. Thus, our study contributes to the literature by providing a new look at the mixed results regarding the relationship between financial development and theoretical income inequality. Finally, the article provides policy implications for the Government of Vietnam.
Keywords
Financial Development; Income Inequality; ARDL; Democracy; Economic Growth; Political Institutions; Vietnam;
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