Meditation for level of institutional quality to combat income inequality through financial development

Institutional role to perpetuate the relationship between financial development and income inequality has significant importance from policy perspectives. The broadening income inequality and its procurement through financial sector is attracting the worldwide attention of researchers now days. This study is an attempt to investigate the relationship of income inequality and financial development varying with level of institutional quality. To this end, unbalanced panel data set for 124 countries covering the time span 1990-2015 is used applying the instrumental variable threshold regression approach. The estimated results highlight that embedded efficient institutional framework of a country assures more income equality with financial development. Moreover, GDP growth increases the income inequality if institutional quality is below the threshold level while educational attainment is a major factor to decrease it. In respect of policy implications, financial sector may be fruity to overcome income inequality if policy makers bring the level of institutional quality up to threshold level of that country.