We study a financial inclusion policy targeting Brazilian cities with low bank branch coverage using data on the universe of employees from 2000–2014. The policy leads to bank entry and to similar increases in both deposits and lending. It also fosters entrepreneurship, employment, and wage growth, especially for cities initially in banking deserts. These gains are not shared equally and instead increase with workers’ education, implying a substantial increase in wage inequality. The changes in inequality are concentrated in cities where the initial supply of skilled workers is low, indicating that talent scarcity can drive how financial development affects inequality.
Julia Fonseca is an Assistant Professor of Finance at the University of Illinois at Urbana-Champaign. She received her PhD in Economics from Princeton University in 2019. Her research interests include household finance, development finance, and labor and finance. Her work focuses on topics like financial development, consumer financial markets, and inequality.
