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Does income inequality contribute to credit cycles?

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  • Malinen, Tuomas

Abstract

Recent literature has presented arguments linking income inequality on the financial crash of 2007 - 2009. One proposed channel is expected to work through bank credit. We analyze the relationship between income inequality and bank credit in panel cointegration framework, and find that they have a long-run dependency relationship. Results show that income inequality has contributed to the increase of bank credit in developed economies after the Second World War.

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  • Malinen, Tuomas, 2014. "Does income inequality contribute to credit cycles?," MPRA Paper 52831, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52831
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    Cited by:

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    2. Fierro, Luca Eduardo & Giri, Federico & Russo, Alberto, 2023. "Inequality-constrained monetary policy in a financialized economy," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 366-385.
    3. 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.
    4. 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.
    5. 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.
    6. Ana Romão & Ricardo Barradas, 2024. "Macroeconomic determinants of households' indebtedness in Portugal: What really matters in the era of financialisation?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 383-401, January.
    7. Piotr Bolibok, 2018. "The Macroeconomic Drivers Of Household Debt-To-Income Ratio: An Evidence Frome The Oecd Countries," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 7(2), pages 29-41.
    8. 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.
    9. Jan Behringer & Sabine Stephan & Thomas Theobald, 2017. "Macroeconomic factors behind financial instability," IMK Working Paper 178-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    10. Stockhammer, Engelbert & Wildauer, Rafael, 2018. "Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries," Review of Behavioral Economics, now publishers, vol. 5(2), pages 85-121, September.
    11. El-Shagi, Makram & Fidrmuc, Jarko & Yamarik, Steven, 2020. "Inequality and credit growth in Russian regions," Economic Modelling, Elsevier, vol. 91(C), pages 550-558.
    12. 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.
    13. 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).
    14. Vijverberg, Chu-Ping C., 2024. "Income inequality and household debt: A U.S. state-level spatial analysis," Economic Modelling, Elsevier, vol. 138(C).
    15. 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).
    16. Xinhua Gu & Chun Kwok Lei & Qingbin Zhao & Nian Liu, 2024. "Different experiences of Asian emerging‐market economies in the two major financial crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3286-3308, July.
    17. 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.
    18. Chen, Jinzhi & Song, Lu & Wen, Xingchun & Wu, Huan, 2024. "Credit easing, income gap, and housing price fluctuation," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 490-502.
    19. Monroy-Taborda Sebastián, 2023. "Bank Runs and Inequality," Asociación Argentina de Economía Política: Working Papers 4672, Asociación Argentina de Economía Política.
    20. Wang, Shengquan, 2023. "Income inequality and systemic banking crises: A nonlinear nexus," Economic Systems, Elsevier, vol. 47(4).

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    More about this item

    Keywords

    top 1% income share; bank loans; cointegration;
    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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