Inequality of Debt and its Macroeconomic Implications: Evidence from South Korea

Abstract

This study establishes the stylized facts on economic inequality using KLIPS (Korean Labor & Income Panel Study) of 2001-2015 and presents empirical evidence on their macroeconomic implications. Firstly, we find that income and consumption inequality have not increased in 2000s, contradicting public belief. However, debt inequality has increased steadily in 2000s as high-income group leads a run-up of household debt while low-income group faces more limited access to financial markets. Secondly, in addition to increased debt inequality, usages of debt are very different depending on income levels. Using fixed effects panel regressions and panel VARs, we find that high-income group tends to borrow in order to invest in real estate assets or buy houses, while low-income group borrows to consume. We discuss possible links between inequality of debt, income, and wealth based on our findings.

Keywords: economic inequality, inequality of debt, housing prices, household debt

JEL Classification: D1, D31, E21