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Household Debt, Consumption and Inequality

Berrak Bahadir, Kuhelika De () and William Lastrapes ()
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Kuhelika De: Department of Economics, Grand Valley State University

No 2011, Working Papers from Florida International University, Department of Economics

Abstract: This paper examines the link between household credit shocks, consumption and income inequality at the national level. Empirically, we use country-speciï¬ c VAR models to estimate the dynamic responses of aggregate consumption to household credit shocks. We then show in cross-country regressions that the consumption response is more sensitive to such shocks in countries with higher levels of inequality, even after controlling for ï¬ nancial development. Theoretically, we construct and simulate a dynamic model based on the effect of inequality on the incidence of credit constraints, to illustrate potential causal mechanisms.

Keywords: credit constraints; credit shocks; income distribution; VAR; Gini coefficient; local projections (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 E51 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2020-12
New Economics Papers: this item is included in nep-fdg and nep-mac
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