Income inequality and the local banking system: A case study based on Italian data

Income inequality is one of the key indicators used to measure social and economic disparities (among households and businesses) in a given area. This study analyzes the impact of the local banking system on income inequality in the municipalities of an Italian region situated in the center-north of the country, a dynamic and economically prosperous area. To this end, it employs a dynamic panel data model, estimated using the system generalized method of moments (GMM) estimator, to address the issue of endogeneity and ensure unbiased inferences. The investigated region represents a significant case study, as its banking system has undergone profound changes. The results of this analysis, based on municipal-level data, suggest that an increase in credit provision tends to reduce income inequality, while the accumulation of wealth in the form of deposits exacerbates it. Furthermore, the physical presence of credit cooperative banks (CCBs) and their relationship lending approach emerge as key factors in mitigating inequality. The closure of bank branches, in fact, could heighten social disparities. In terms of economic policies, the study concludes that access to credit, along with a banking system based on a relationship-based model such as that of the CCBs, is effective in promoting inclusive territorial development.