Financialization, Income Inequality, and Redistribution in 18 Affluent Democracies, 1981–2011

In recent decades, the growth of finance and rising income inequality has become a pervasive feature of the political economies in affluent capitalist democracies. This study investigates the long-run effects of financialization on three measures of income inequality—market-generated income inequality, redistribution, and state-mediated income inequality—in 18 affluent capitalist democracies from 1981 to 2011. We focus on three aspects of financialization (finance, insurance, and real estate employment; credit expansion; and financial crises). We find support for our claims that all three measures of financialization increase market-generated and state-mediated income inequality. The results for redistribution are mixed: credit expansion decreases redistribution as expected, but financial crises increase redistribution—a finding that supports the welfare state stabilization hypothesis.