Big Bad Banks? The Impact of U.S. Branch Deregulation on Income Distribution
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NBER Working Paper No. 13299
Issued in August 2007
NBER Program(s): CF DAE EFG
By studying intrastate branch banking reform in the United States, this paper provides evidence that financial markets substantively influence the distribution of income. From the 1970s through the 1990s, most states removed restrictions on intrastate branching, which intensified bank competition and improved efficiency. Exploiting the cross-state, cross-time variation in the timing of bank deregulation, we evaluate the impact of liberalizing intrastate branching restrictions on the distribution of income. We find that branch deregulation significantly reduced income inequality by boosting the incomes of lower income workers. The reduction in income inequality is fully accounted for by a reduction in earnings inequality among salaried workers.
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This paper was revised on June 1, 2009 Acknowledgments
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