Financial Diversity And Income Inequality

As the major allocation division sector of economy, financial institutions play an important role that can not be ignored on the income distribution. With the Chinese financial reform deepening, the scale of financial assets expand and the financial diversity situation gradual appears. While income inequality continues to grow. How to makes the financial institutions to play a better role in reducing income inequality, has become a social concern.While most of the existing literature concerned focus on the effects of financial development to the income inequality, especially the influence of the financial scale on income inequality, and ignore the financial structural factors. Whether the economic effect of financial development can be shared is not decided by the financial scale, but by the financial structure. The rise of financial diversity is conducive to the sharing of financial interests. Therefore, financial diversity has important influence on income inequality.Based on the search of literature concerned, this paper analysis the relationship between financial diversity and income inequality from the perspective of theoretical and empirical comprehensive. The theory of financial diversity affecting income inequality mainly includes the financial structure theory, financial repression and financial deepening theory, theory of financial restraint and financial function theory. On the macro level, financial diversity mainly affects income inequality by the poverty reduction effect, threshold effect and non-equilibrium effect; On the micro level, financial development affects income by the influence of the human capital investment and capital investment. Combined with the current situation of the development of Chinese financial diversity and income inequality, the mechanism of financial diversity on income inequality is analyzed respectively in the macro and micro levels, Combined with the current situation of the development of Chinese financial diversity and income inequality, the mechanism of financial diversity on income inequality is analyzed respectively in the macro and micro levels. Then we establish the regression model to carry on empirical test, using the provincial data of Chinese 31 provinces from 2005-2011 years. The results showed, the financial diversity and income inequality has a significant and negative relationship, and only the financial diversity exceeds a threshold value(2.57=0.018/0.007), the expansion of the financial scale can reduce income inequality; inspection decomposition the source of income, we have found that the rising financial diversity significantly reduced the wage income and property income inequality between high income group and low income group, while has a negative but not significant effect on the wage income and transfer income.Based on the above theoretical and empirical research, this paper gets some policy implications: in the process of the financial reform, government should optimize the financial system and gradually liberalize its strict financial controls. At the same time, government should strengthen the construction of rural financial development, build multi-level rural finance and improve the financing system of small and medium-sized enterprises. Try to make the financial scale and financial diversity to coordinated develop. The effect of financial diversity release in income distribution, not only conducive to the realization of financial inclusive development, but also conducive to the realization of the fairness and efficiency.