An Examination of the Stock Market\u27s Effect on Economic Inequality

The economic literature on economic inequality has shown that it can negatively impact aggregate demand because it indicates a higher concentration of wealth in the hands of the top 10% as opposed to the poor and middle class, who are more likely to consume. The literature has identified many factors that can lead to increasing inequality. The stock market could be one of those factors since it can either create an upward redistributive effect towards the top 10% or redistributive effect towards the middle class. This paper tested the effect of the stock market on inequality. This study contributes to the literature by analyzing the stock market in terms of size, the turnover of stocks, and the return on stock markets in Organization of Economic Development (OECD) countries. Using the standard OLS model and building upon the fixed-effects regression model of Tsountas et al (2015), the results showed that the stock market can have a positive impact on inequality, but only in terms of the return on the stock market, and has weak economic significance. The paper recommends that policymakers should attempt to focus attention on factors that more greatly affect economic inequality