Panel analysis of Brazilian regional inequality

A growing body of literature has concluded that financial liberalisation, in terms of the increased weight and influence of the financial sector, has contributed in a significant way to increasing disparities in income, wealth and society since the 1980s within advanced and emerging economies. Against a backdrop of financialisation, extreme inequality and evolving financial instability, this paper’s primary contribution is to analyse the determinants of personal income inequality within one of the world’s prominent emerging economies, Brazil. We pay particular attention to the magnitude, significance and scale of the determinants in a financialisation context, from which this paper’s relative contributions emerge. Our empirical strategy utilises modern panel data techniques and different instrumental variables approaches for robustness. This paper’s analysis provides a first step in the direction of identifying the main mechanisms through which the Brazilian model of financial liberalisation has affected income inequality at the sub-national scale; while providing an early indication of how inequality might evolve in the future. In conclusion, the revealed significant linkages between financialisation, local liquidity preferences, capital account liberalisation and social protection expenditure threaten more extreme inequality, both in Brazil’s financial centre-space and beyond.