 Income inequality and systemic banking crises: A nonlinear nexusShengquan Wang Economic Systems, 2023, vol. 47, issue 4 Abstract: Motivated by Rajan’s work, we propose that income inequality and systemic banking crises have a nonlinear nexus. In addition to examining the linear “Rajan effect,” we propose a “Kuznets effect” based on an assumption that income inequality has a nonlinear impact on growth, conditional on the stage of economic development, and thus plays a nonlinear role in modeling crises. We test the existence of this nexus using a sample covering 172 economies for a period of fifty years. We confirm that the relationship is U-shaped and identify the threshold level of income inequality that is beneficial for financial stability. Additionally, the U-test and area under the receiver operating characteristic (AUROC) statistics confirm that nonlinearity, and our model has good predictive performance of forecasting. Furthermore, the results of our panel regressions are consistent and are robust to several tests. We then identify the Rajan and Kuznets effects using a two-step test. We conclude that the impact of income inequality on the occurrence of systemic banking crises is U-shaped. Keywords: Income inequality; Kuznets effect; Rajan effect; Systemic banking crises (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:47:y:2023:i:4:s0939362523000572 DOI: 10.1016/j.ecosys.2023.101123 Access Statistics for this article Economic Systems is currently edited by R. Frensch More articles in Economic Systems from Elsevier Contact information at EDIRC. |
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