Income inequality and systemic banking crises: A nonlinear nexus

Wang, Shengquan

doi:10.1016/j.ecosys.2023.101123

Cited by 3 publications

(1 citation statement)

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“…Some recent studies have argued for an asymmetric relationship between income inequality and household debt (Cheah et al 2022;Wang 2023). Fasianos et al (2016) used data from 1913 to 2008 and found evidence of an asymmetric cointegration between household debt and income inequality in the US, with household debt only responding to positive changes in income inequality.…”

Section: Recent Empirical Literature On Inequality and Household Debtmentioning

confidence: 99%

On the Dynamic Relationship between Household Debt and Income Inequality in South Africa

Zhou,

Niyitegeka

2023

JRFM

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This paper analyses the relationship between household debt and income inequality in South Africa for the period 1980–2021. We use two measures of inequality and estimate a vector error correction model (VECM) which includes household debt, inequality, and other macroeconomic variables. To test the robustness of our results, single equation models are used, which estimate household debt as a function of inequality and macroeconomic factors. We employ two measures of inequality, namely Gini coefficient and ratio of top and bottom income earners’ proportion of income. Furthermore, we use both household debt as a percentage of disposable income and household debt service costs as dependent variables in single equation regressions. The study finds a negative and significant relationship between household debt and income inequality in the long run, which contradicts the Rajan hypothesis in the South African case. Rather, we find that inequality in South Africa creates a bias in debt allocation towards high-income earners, whose incomes can easily absorb the extra debt (reduced ratio of debt to disposable income). There are therefore no socio-equity considerations in South African credit markets. We find growth in gross domestic product (GDP) per capita also has a moderating effect on the relationship between household debt and income inequality. High GDP per capita growth in the presence of high inequality reduces the impact of inequality on household debt and vice-versa. All other control variables take expected signs. These results are robust to changes in the inequality or household debt measures.

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Section: Recent Empirical Literature On Inequality and Household Debtmentioning

confidence: 99%