Delaware Incorporations

Document Sample
Delaware Incorporations Powered By Docstoc
					Bank Regulation and Income Distribution
Evidence from Branch Deregulation




     Thorsten Beck, Ross Levine and
             Alexey Levkov
Finance and income inequality – cross-country
Motivation
   Does banking sector development benefit the
    rich or the poor?
       Greenwood and Jovanovic (1993)
       Galor and Zeira (1993), Galor and Moav (2004)
   Do large banks help the rich and wealthy?
       Extensive restrictions on banks in most of U.S.
        history
       Debate on bank regulation often led in terms of
        income distribution
   We use branching deregulation episode to
    assess impact of financial liberalization in
    income inequality
Branching restrictions
   Until mid-1970s most states restricted the ability
    of banks to freely branch within states and across
    states, reducing competition
       Small banks with local monopolies (Flannery, 1984)
       Created rents and lobby groups to defend them (White,
        1982)
   Technological progress undermined these
    restrictions (Kroszner and Strahan, 1999)
     ATMs
     Checkable money market mutual funds

     Communication technology improvements

    weakened geographic link between bank and client
Branch deregulation
   From mid-1970s until 1994 (Riegle-Neal Act), most
    states did away within intra- and inter-state branch
    restrictions
      Growth accelerated (Jayaratne and Strahan, 1996)

      Bank efficiency improved (Jayaratne and Strahan,
       1998)
      Rate of new incorporations increased (Black and
       Strahan, 2002)
      Volatility decreased (Morgan, Rime and Strahan,
       2004)
        Timing and effects
National technological changes
weakens local branch monopoly
                                  State
                                  Deregulation




                           Time
Our paper
   Did branch deregulation result in an increase or
    decrease in income inequality as measured by Gini?
   Cross-country evidence:
       Beck, Demirguc-Kunt and Levine (2007): Financial
        development is associated with faster reductions in Gini
       See also Clarke, Xu and Zhou (2007)
   Debate on bank restrictions in general:
       Political debate on bank regulation has been to a large
        extent about income distribution
       Do we have to restrain banks from growing too big in order
        to protect the poor?
Our econometric test
Difference-in-difference estimation
   Log(Gini)i,t = ai + bt + gDeregulationi,t + dXi,t + ei,t

      X = State GSP, Govt. taxes/personal income, govt.
       expenditure/personal income, college graduates
      Cluster on state-level
      Drop observation in year of deregulation
      Little concerns of endogeneity
      Deregulation at different times allows to exploit state-time-
       panel
      Single policy change - reduce identification and
       comparability problems often associated with cross-country
Data – income distribution
    Current Population Survey (CPS)
    Detailed information on different household
     income sources
    Compute Gini across states for each year
     over 1977 to 2003
    Compute for total household, total
     individual income, wage and salary income
     (male and female), proprietor income
Data – branch deregulation
   Focus on intra-state branching deregulation
       Allow bank holding companies to convert
        subsidiaries into branches; allow de-novo
        branching
   Data on 48 states and DC
       Drop Delaware and South Dakota (credit cards)
       Most states deregulated during sample period
       15 states deregulated before 1977
       Arkansas, Iowa and Minnesota were the last to
        deregulate
        Branch Deregulation and Income
        Distribution – Statistical effect

                                     (1)         (2)        (3)        (4)        (5)
Deregulation                      -.013**   -.013***   -.013***    -.012**    -.008**
GSP growth                                     -.056      -.042      -.043      -.055
Gov. taxes /Pers. income                     .511***    .587***    .594***    .386***
Gov. expenditure / Pers. income             -.271***   -.321***   -.311***   -.257***
GSP growth (t-1)                                        -.060**    -.058**      -.033
GSP growth (t-2)                                          -.030      -.029      -.018
College grads.                                                       -.085      -.036
Log(Gini) (t-1)                                                               .333***
R-squared                          .79        .79        .79        .79          .81
Num. obs                          1,287      1,287      1,287      1,287       1,239
        Timing and effects
National technological changes
weakens local branch monopoly
                                  State
                                  Deregulation




                           Time
          The Effect of Deregulation on Income Inequality

1



0



-1



-2



-3

     -4    -3   -2    -1     0        1        2      3   4   5   6
                           Years since deregulation
Branch Deregulation and Income
Distribution – Economic effect
   Coefficient:                      0.013
   Within-state, within-time standard
    deviation of log of Gini          0.034

   Branching deregulation explains 40% of
    variation of log Gini relative to state and
    year averages.
            Branch Deregulation and Income
            Distribution by Type of Income


   Total          Total               Wage and salary
household      individual                income                 Proprietor
  income         income        All       Female         Male     income
 -.013***       -.013**     -.015**     -.023***        -.007    -.032**
Conclusions
   Branching deregulation
       Increased growth
       Reduced income inequality
         Pro-poor
   Strongest effect among female wage and
    salary earners and proprietors
   Effect of finance on income inequality seems
    to go both through labor market and access
    to credit

				
DOCUMENT INFO
Description: Delaware Incorporations document sample