Household Debt, Consumption and Inequality
34 Pages Posted: 12 Sep 2019
Date Written: September 3, 2019
This papers examines the potential link between household credit shocks and income inequality at the national level. For a sample of 32 developed and developing countries, we show that aggregate consumption temporarily increases in the short run and decreases in the long run in the face of credit shocks, and that this dynamic response is larger in absolute value, in the short and long run, for countries with high income inequality compared to those with low income equality. We develop a simple dynamic theoretical model, based on binding credit constraints, to illustrate the model’s mechanisms.
Keywords: Credit constraints, credit shocks, income distribution, VAR, Gini coeﬃcient
JEL Classification: E21, E32, E44, E51
Suggested Citation: Suggested Citation