Financial inclusion and social outcomes in the European Union: Evidence from time-series analysis

Financial inclusion has become increasingly central to the European Union’s social policy agenda amid digital transformation, recurrent economic shocks, and persistent poverty and inequality concerns. This study aims to assess the impact of financial inclusion on poverty risk and income inequality in the European Union, with particular attention to non-linear and long-run effects. The analysis uses annual aggregate EU-level data for 2004–2023. It applies time-series econometric methods, including correlation analysis, unit root and Granger causality tests, linear and quadratic regressions, and Error-Correction Models. The results indicate that financial inclusion does not exert a uniform direct linear effect on social outcomes. Correlation analysis shows a strong association between digital financial use and income inequality (e.g., card transactions and the Gini coeffcient: r=−0.69; internet banking use and the Gini coeffcient: r=−0.63), while correlations with poverty risk remain weak. Regression results confirm that most financial inclusion indicators have no statistically significant linear effect on poverty risk. However, a significant non-linear (inverted U-shaped) relationship is identified between card payment transactions and poverty risk, indicating that poverty risk declines once digital payment usage exceeds a threshold. In contrast, income inequality is significantly and negatively associated with traditional financial access, as increases in bank branch density per 100,000 inhabitants reduce the Gini coeffcient in both the short and long run. Overall, the findings show that the social effects of financial inclusion in the EU are outcome-specific and depend on the form and intensity of inclusion rather than access alone.