The Relationship Between Financial Development and Income Inequality for Different Income Groups: An ARDL Bounds Test Approach for Türkiye

As financial development (FD) has become as important a factor as economic growth, this study analyses how financial development shapes income inequality, based on the Kuznets Curve approach. The research aims to contribute significantly to the literature by examining the relationship between financial development and income distribution from a more current perspective. For this reason, within the scope of the study, two models were created to measure how FD affects different income groups, and the Kuznets Curve approach selected the dependent variables of these models. As a result of the literature review, the independent variables were determined as the FD index, the square of the FD index, the annual percentage change in the consumer price index, the natural logarithm of GDP, and the natural logarithm of transfer expenditures. As a result of the ARDL test, it was concluded that FD caused the gap between the low-income and high-income groups to widen, the share of the low-income group in society to decrease, and the share of the high-income group to increase. These results showed that transfer expenditures can provide short-term solutions to reduce income inequality caused by financial development (FD) in developing economies such as Türkiye. However, it has been recommended that it is necessary to improve financial education, raise awareness and implement financial market reforms for a long-term solution.