Macroprudential policies and income inequality in former transition economies

We study the effects of the adoption of macroprudential policies on income inequality in former transition economies over the period 2002-2014. In general, this adoption leads to rising income inequality; however, the effect depends on the degree of domestic financial development and globalization: for low levels of openness and financial development, they increase inequality. Instead, some macroprudential measures may result in lower income inequality, provided the adopting economy is sufficiently open and has a developed/unrestricted financial system. Our results suggest that reduction in income inequality can be promoted together with financial stabilization and the avoidance of systemic risks.