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Is there a relationship between income inequality and credit cycles?

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  • Tuomas Malinen

    (University of Helsinki and HECER)

Abstract

Recent studies by Atkinson (2011); Rajan (2010); Kumhof and Ranciére (2010); Bordo and Meissner (2013) have assessed the relationship between income inequality and financial stability. Bordo and Meissner found that changes in income inequality do not have an effect on the growth of credit. We extend their study by assessing the relationship between levels of income inequality and leverage. We find that the relationship between inequality and credit is long-run, i.e. trending, in nature and that removing this relation with first differencing will lead to biased inference. In conclusion we find that income inequality is associated with increased leverage in the economy.

Suggested Citation

  • Tuomas Malinen, 2013. "Is there a relationship between income inequality and credit cycles?," Working Papers 292, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2013-292
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2013-292.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yamarik, Steven & El-Shagi, Makram & Yamashiro, Guy, 2016. "Does inequality lead to credit growth? Testing the Rajan hypothesis using state-level data," Economics Letters, Elsevier, vol. 148(C), pages 63-67.
    2. Mathias Klein, 2015. "Inequality and household debt: a panel cointegration analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(2), pages 391-412, May.
    3. Mehmet Akif Destek & Bilge Koksel, 2019. "Income inequality and financial crises: evidence from the bootstrap rolling window," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-23, December.
    4. Pablo García, 2014. "Equidad y Estabilidad Macrofinanciera," Economic Policy Papers Central Bank of Chile 49, Central Bank of Chile.

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    More about this item

    Keywords

    top 1% income share; bank loans; unit root; cointegration Classification-JEL: C23; D31; G21;
    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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