Stock market development and income inequality

The purpose of this paper, in contrast to other studies, is to examine an indirect relationship in terms of the effect of income inequality with stock market development in countries South of the Euro-zone during the period 2002-2013.

The author adopts a new econometric method, the Improved Augmented Regression Method, to obtain bias-reduced and stationary-corrected estimators.

The results reveal a negative relationship that puts into doubt the recovery of growth.

The new econometric methodology leads to a novel suggested policy on the need for reforms adopting a low-income tax rate system and reinforcement of export-oriented productivity. This conclusion is strengthened by the respective relationship in USA.