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Do rising top incomes fuel credit expansion?

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  • El Herradi, Mehdi
  • Leroy, Aurélien

Abstract

This paper provides an empirical assessment of the effect of income inequality on credit dynamics in 12 advanced economies over the period 1948–2015. We use foreign Communist influence as an instrument to identify exogenous variation in inequality and estimate the dynamic effect of a top income shock on credit over GDP. The results suggest that the evolution of top incomes has persistent effects on credit expansion, especially for mortgage and business loans.

Suggested Citation

  • El Herradi, Mehdi & Leroy, Aurélien, 2020. "Do rising top incomes fuel credit expansion?," Economics Letters, Elsevier, vol. 196(C).
  • Handle: RePEc:eee:ecolet:v:196:y:2020:i:c:s0165176520303268
    DOI: 10.1016/j.econlet.2020.109539
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    More about this item

    Keywords

    Credit; Finance; Income inequality; Top income shares;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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