Is there a relationship between income inequality and credit cycles?

Tuomas Malinen

No 292, Working Papers from ECINEQ, Society for the Study of Economic Inequality

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.

Keywords: top 1% income share; bank loans; unit root; cointegration Classification-JEL: C23; D31; G21 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-03
New Economics Papers: this item is included in nep-ban, nep-ltv and nep-pbe
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:inq:inqwps:ecineq2013-292

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