EconPapers    
Economics at your fingertips  
 

Does inequality lead to a financial crisis?

Michael Bordo () and Christopher Meissner ()

Journal of International Money and Finance, 2012, vol. 31, issue 8, 2147-2161

Abstract: The recent global crisis has sparked interest in the relationship between income inequality, credit booms, and financial crises. Rajan (2010) and Kumhof and Rancière (2011) propose that rising inequality led to a credit boom and eventually to a financial crisis in the US in the first decade of the 21st century as it did in the 1920s. Data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships. Credit booms heighten the probability of a banking crisis, but we find no evidence that a rise in top income shares leads to credit booms. Instead, low interest rates and economic expansions are the only two robust determinants of credit booms in our data set. Anecdotal evidence from US experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality, credit, crisis nexus. Rather, it points back to a familiar boom-bust pattern of declines in interest rates, strong growth, rising credit, asset price booms and crises.

Keywords: Top incomes; Income inequality; Redistribution; Credit booms; Financial crises; Financial de-regulation (search for similar items in EconPapers)
JEL-codes: E25 E32 E51 G01 N1 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (103) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560612000976
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Does Inequality Lead to a Financial Crisis? (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:8:p:2147-2161

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-10-14
Handle: RePEc:eee:jimfin:v:31:y:2012:i:8:p:2147-2161