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Inequality, credit and financial crises.

Holscher, J., Perugini, C. and Collie, S., 2015. Inequality, credit and financial crises. Cambridge Journal of Economics, 40 (1), 227-257.

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cje.beu075.full.pdf - Accepted Version


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DOI: 10.1093/cje/beu075


In the three decades leading up to the financial crisis of 2008/09, income inequality rose across much of the developed world. This has led to a vigorous debate as to whether widening inequality was somehow to blame for the crisis by driving private sector credit booms. However, despite growing interest, empirical evidence on an inequality-fragility relationship is limited. Based on a panel analysis of eighteen OECD countries for the years 1970-2007, this study finds a statistically significant, positive relationship between income concentration and private sector indebtedness, once other traditional drivers are controlled for. The implications are twofold: (i) the view that the distribution of income is irrelevant to macroeconomic stability, as implicit in mainstream approaches, needs a second look; (i) to make the financial system more robust, policy-makers should cast the net wider than regulatory and monetary policy reforms, and consider the effects of changes to the income distribution.

Item Type:Article
Uncontrolled Keywords:inequality ; crisis ; debt; Income inequality; Credit booms Financial crises; Financial deregulation
Group:Bournemouth University Business School
ID Code:21720
Deposited By: Symplectic RT2
Deposited On:23 Feb 2015 12:24
Last Modified:14 Mar 2022 13:50


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