development to enhance the absorptive capacity of financial markets (Ebbinghaus, 2015). We draw on the information available from Visser (2015).

# **5.2 Results**

We present the results of these regressions in Table 3.

## **Explaining inequality-increasing** **<u>policies</u>**

||Financi|al Reform|Bank. Ent|ry Barriers|Social|Pact|PT I|ndex|Social|Reform|Pension|Reform|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|(9)|(10)|(11)|(12)|
|CBI|2.92<sup>_⇤⇤_</sup>|2.14<sup>_⇤_</sup>|1.05<sup>_⇤⇤⇤_</sup>|0.99<sup>_⇤⇤⇤_</sup>|0.27<sup>_⇤_</sup>|0.31<sup>_⇤_</sup>|20.01<sup>_⇤⇤⇤_</sup>|20.24<sup>_⇤⇤⇤_</sup>|0.09<sup>_⇤_</sup>|0.08|0.07<sup>_⇤⇤_</sup>|0.06<sup>_⇤⇤_</sup>|
||(1.18)|(1.14)|(0.35)|(0.36)|(0.15)|(0.17)|(6.74)|(7.06)|(0.05)|(0.07)|(0.03)|(0.03)|
|GDP (log)|-0.11|-0.01|-0.59<sup>_⇤⇤⇤_</sup>|-0.60<sup>_⇤⇤⇤_</sup>|-0.12|-0.15|0.30|0.04|0.05|0.05|0.03|0.04<sup>_⇤⇤_</sup>|
||(0.85)|(0.88)|(0.21)|(0.21)|(0.18)|(0.17)|(2.91)|(2.99)|(0.07)|(0.08)|(0.03)|(0.02)|
|Population (log)|0.55|-0.49|0.90<sup>_⇤_</sup>|0.86<sup>_⇤_</sup>|-0.16|-0.13|-22.50<sup>_⇤⇤_</sup>|-22.67<sup>_⇤⇤_</sup>|-0.20<sup>_⇤⇤⇤_</sup>|-0.21<sup>_⇤⇤⇤_</sup>|-0.04|-0.08<sup>_⇤_</sup>|
||(1.77)|(1.81)|(0.49)|(0.51)|(0.25)|(0.25)|(9.32)|(9.30)|(0.07)|(0.07)|(0.04)|(0.04)|
|Country FE|X|X|X|X|X|X|X|X|X|X|X|X|
|Year FE||X||X||X||X||X||X|
|Quadratic Time|X||X||X||X||X||X||
|Observations|2176|2176|2176|2176|1230|1230|1723|1723|1198|1198|1197|1197|
|_R_<sup>2</sup>|0.80|0.82|0.34|0.35|0.01|0.04|0.28|0.29|0.02|0.05|0.01|0.06|
|Mean of DV|11.21||1.34||0.25||41.40||0.05||0.02||
|SD of DV|6.21||1.19||0.48||19.28||0.22||0.15||

Table 3: The dependent variable is listed at the top of the models. _Financial Reform_ is an index (from 0 to 21) where higher values denote higher levels of financial liberalization. _Bank. Entry Barriers_ is an index (from 0 to 5) where higher values denote that banking entry barriers are laxer. _Social Pact_ is a variable that ranges from 0 (no social pact or agreement in a given year) to 5, which would indicate that a country-year has more than three social pacts or agreements. _PT_ is an index (from 0 to 100) variable whereby higher values of the index have less stringent regulations concerning part-time and contractual workers. _Social Reform_ is an indicator ( _{_ 0,1 _}_ ) where 1 means that a country-year has a social pact that entails clauses on social policy reform. _Pension Reform_ is a binary variable _{_ 0,1 _}_ where 1 indicates that a a country-year has a social pact that entails clauses on pension reform. Standard errors clustered by country. Symbols: _⇤_ : _p <_ 0 _._ 1; _⇤⇤_ : _p <_ 0 _._ 05; _⇤⇤⇤ p <_ 0 _._ 01.

We find evidence for all three channels. In terms of financial market deregulation, governments tend to implement more comprehensive reforms that fuel competition and subsequently financial activity. For instance, a one-standard deviation increase in CBI is associated with a one point increase in the financial reform index. In comparison, Abiad, Detragiache, and Tressel (2010) code a three point increase in the financial liberalization index as a large-scale financial reform. Similarly, we find that governments are more likely to initiate and agree with labor unions and employers on a social pact. Similarly, governments tend to enhance the legal rights of part-time and contract 18