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Does income inequality contribute to credit cycles?

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  • Tuomas Malinen

    (University of Helsinki
    University of Helsinki)

Abstract

Recent literature presented arguments linking income inequality to the financial crash of 2007–2008. One proposed channel is expected to work through bank credit. I analyze the relationship between income inequality and bank credit in a panel cointegration framework and find that they have a long-run dependency relationship. Results show that income inequality contributed to the increase of bank credit in developed economies after the Second World War.

Suggested Citation

  • Tuomas Malinen, 2016. "Does income inequality contribute to credit cycles?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(3), pages 309-325, September.
    • Handle: RePEc:kap:jecinq:v:14:y:2016:i:3:d:10.1007_s10888-016-9334-6
    DOI: 10.1007/s10888-016-9334-6
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    6. Gu, Xinhua & Tam, Pui Sun & Lei, Chun Kwok, 2021. "The effects of inequality in the 1997–98 Asian crisis and the 2008–09 global tsunami: The case of five Asian economies," Journal of International Money and Finance, Elsevier, vol. 110(C).
    7. Vijverberg, Chu-Ping C., 2024. "Income inequality and household debt: A U.S. state-level spatial analysis," Economic Modelling, Elsevier, vol. 138(C).
    8. Thomas Hauner, 2020. "Aggregate wealth and its distribution as determinants of financial crises," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(3), pages 319-338, September.
    9. Bertrand Blancheton & Dina Chhorn, 2021. "Government Intervention, Institutional Quality, and Income Inequality: Evidence from Asia and the Pacific, 1988–2014," Post-Print hal-03770836, HAL.
    10. Israel, Karl-Friedrich, 2017. "In the long run we are all unemployed?," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 67-81.
    11. Glenn Lauren Moore & Engelbert Stockhammer, 2018. "The drivers of household indebtedness reconsidered: An empirical evaluation of competing arguments on the macroeconomic determinants of household indebtedness in OECD countries," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(4), pages 547-577, October.
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    16. Monroy-Taborda Sebastián, 2023. "Bank Runs and Inequality," Asociación Argentina de Economía Política: Working Papers 4672, Asociación Argentina de Economía Política.
    17. Wang, Shengquan, 2023. "Income inequality and systemic banking crises: A nonlinear nexus," Economic Systems, Elsevier, vol. 47(4).
    18. Bellettini, Giorgio & Delbono, Flavio & Karlström, Peter & Pastorello, Sergio, 2019. "Income inequality and banking crises: Testing the level hypothesis directly," Journal of Macroeconomics, Elsevier, vol. 62(C).
    19. Kirschenmann, Karolin & Malinen, Tuomas & Nyberg, Henri, 2016. "The risk of financial crises: Is there a role for income inequality?," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 161-180.
    20. Marta de la Cuesta-González & Cristina Ruza & José M. Rodríguez-Fernández, 2020. "Rethinking the Income Inequality and Financial Development Nexus. A Study of Nine OECD Countries," Sustainability, MDPI, vol. 12(13), pages 1-18, July.

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    More about this item

    Keywords

    Top 1 % income share; Bank credit; Cointegration; Granger causality;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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