Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data

Coibion, Olivier; Gorodnichenko, Yuriy; Kudlyak, Marianna; Mondragon, John

doi:10.2139/ssrn.2382594

Cited by 18 publications

(37 citation statements)

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“…Broadly, the influence of inequality could work through the supply of or demand for credit. Financial institutions could use increasing income inequality within a region to help them target credit (Coibion et al 2014). Alternatively, there are a variety of ways rising inequality could affect the demand for credit (Bertrand and Morse 2013).…”

Section: The Influence Of Inequality On Consumption and Debtmentioning

confidence: 99%

“…As the share of income held by households at the very top of the distribution has risen to the highest levels in generations (Figure 1), household borrowing has also climbed to historic high levels ( Figure 2) and earnings across the broad middle and bottom of the distribution have experienced little growth. Several recent papers explore the link between inequality and consumption and borrowing (Bertrand and Morse 2013;Coibion et al 2014;Bricker, Ramcharan, and Krimmel 2014b). This paper extends the budding literature on this question; it uses data from the Survey of Consumer Finances (SCF) to explore how changes in the income levels at the 95th and 99th percentiles of the distribution at the state level have affected…”

Section: Introductionmentioning

confidence: 99%

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Rising Top Incomes and Increased Borrowing in the Rest of the Distribution

Thompson

2017

Economic Inquiry

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One potential consequence of rising top‐income concentration is borrowing by less‐affluent households attempting to maintain relative living standards. This paper evaluates the “keeping up with the Joneses” phenomenon, examining the responsiveness of payment‐to‐income ratios for different debt types across the income distribution to changes in income among affluent households. The analysis provides evidence for the responsiveness of debt to rising top incomes. Middle‐ and upper‐middle‐income households take on more housing‐related debt and have higher payments in places with higher top‐income levels. Among lower‐income households non‐mortgage borrowing and debt payments decline, consistent with restrictions in the supply of credit. (JEL D63, D14)

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Section: The Influence Of Inequality On Consumption and Debtmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Rising Top Incomes and Increased Borrowing in the Rest of the Distribution

Thompson

2017

Economic Inquiry

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“…In our view, the results of Coibion et al . () only suggest that the relaxation of borrowing limits is not homogeneous across regions leading to larger increases in borrowing in more equal regions. In fact, they document that credit card limits, aside from balances, increase more in low inequality areas suggesting this geographically asymmetric change in credit supply.…”

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confidence: 95%

“… Coibion, Gorodnichenko, Kudlyak and Mondragon () perform a ‘difference‐in‐difference’ exercise across income groups and regional inequality levels finding that low‐income households in high‐inequality regions accumulated less debt relative to income than their counterparts in lower‐inequality regions. At first sight, one may think that their results contradict ours.…”

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confidence: 99%

Income Inequality and Saving

Alvarez-Cuadrado

Vilalta

2018

Oxf Bull Econ Stat

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.IZA Discussion Paper No. 7083 December 2012 ABSTRACT Income Inequality and SavingOver the last three decades, average income for the bottom half of the US distribution increased by 8% while their average saving rate decreased by eight percentage points. Over the same period the US experienced a substantial increase in inequality and a continuous decrease in the aggregate saving rate. We propose an explanation based on interpersonal comparisons consistent with these trends. When households care about their consumption relative to others, individual saving rates decrease with reference income while aggregate saving decreases with income inequality. We provide evidence from the PSID and a panel of OECD countries consistent with these predictions.JEL Classification: D91, E21, C23

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“…Furthermore, income inequality may limit opportunities for the poor to invest in education and entrepreneurial activity, which ultimately undermines potential growth (Jaumotte and Osorio Buitron, ). Finally, it has been argued that more income inequality leads to higher household indebtedness, fuels asset market bubbles, and raises financial instability (Coibion et al ., ; Kumhof et al ., ; Kirschenmann et al ., ; Perugini et al ., )…”

Section: Introductionmentioning

confidence: 99%

Central Bank Policies and Income and Wealth Inequality: A Survey

Colciago

Samarina

Haan

2019

Journal of Economic Surveys

142

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This paper reviews recent research on the relationship between central bank policies and inequality. A new paradigm which integrates sticky‐prices, incomplete markets, and heterogeneity among households is emerging, which allows for the joint study of how inequality shapes macroeconomic aggregates and how macroeconomic shocks and policies affect inequality. The new paradigm features multiple distributional channels of monetary policy. Most empirical studies, however, analyze each potential channel of redistribution in isolation. Our review suggests that empirical research on the effects of conventional monetary policy on income and wealth inequality yields mixed findings, although there seems to be a consensus that higher inflation, at least above some threshold, increases inequality. In contrast to common wisdom, conclusions concerning the impact of unconventional monetary policies on inequality are also not clear cut. To better understand policy effects on inequality, future research should focus on the estimation of General Equilibrium models with heterogeneous agents.

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Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data

Cited by 18 publications

References 30 publications

Rising Top Incomes and Increased Borrowing in the Rest of the Distribution

Rising Top Incomes and Increased Borrowing in the Rest of the Distribution

Income Inequality and Saving

Central Bank Policies and Income and Wealth Inequality: A Survey

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