Household Debt, Consumption and Inequality

34 Pages Posted: 12 Sep 2019

See all articles by Berrak Bahadir

Berrak Bahadir

University of North Carolina (UNC) at Greensboro

Kuhelika De

Grand Valley State University - Department of Economics

William D. Lastrapes

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Date Written: September 3, 2019

Abstract

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

Bahadir, Berrak and De, Kuhelika and Lastrapes, William D., Household Debt, Consumption and Inequality (September 3, 2019). Available at SSRN: https://ssrn.com/abstract=3447614 or http://dx.doi.org/10.2139/ssrn.3447614

Berrak Bahadir (Contact Author)

University of North Carolina (UNC) at Greensboro ( email )

P.O.Box 26170
Greensboro, NC 27412
United States

Kuhelika De

Grand Valley State University - Department of Economics ( email )

3072 L. William Seidman Center
50 Front Avenue SW
Grand Rapids, MI 49504
United States
616-331-7460 (Phone)

William D. Lastrapes

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Terry College of Business
Athens, GA 30602-6254
United States
706-542-3569 (Phone)
706-542-3376 (Fax)

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