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Inequality and household debt: a panel cointegration analysis


  • Mathias Klein



This study investigates whether there exists an empirical long-run relationship between income inequality and household debt. By using panel cointegration techniques, I find that inequality and leverage are cointegrated of order one and therefore share a common trending relation. Removing this trend by first differencing the series leads to biased inference. The results are robust to different indicators for household debt and alternative inequality measures. In the long-run, a 1 % point increase in inequality is associated with an increase in household credit by 2–6 %, depending on the inequality measure used. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Mathias Klein, 2015. "Inequality and household debt: a panel cointegration analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(2), pages 391-412, May.
  • Handle: RePEc:kap:empiri:v:42:y:2015:i:2:p:391-412 DOI: 10.1007/s10663-015-9281-7

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    References listed on IDEAS

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    Cited by:

    1. Yamarik, Steven & El-Shagi, Makram & Yamashiro, Guy, 2016. "Does inequality lead to credit growth? Testing the Rajan hypothesis using state-level data," Economics Letters, Elsevier, vol. 148(C), pages 63-67.
    2. Glennie Lauren Moore & Engelbert Stockhammer, 2018. "The drivers of household indebtedness re-considered: an empirical evaluation of competing arguments on the macroeconomic determinants of household indebtedness in OECD countries," Working Papers PKWP1803, Post Keynesian Economics Study Group (PKSG).
    3. Tuomas Malinen, 2016. "Does income inequality contribute to credit cycles?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(3), pages 309-325, September.
    4. Stockhammer, Engelbert & Wildauer, Rafael, 2017. "Expenditure cascades, low interest rates or property booms? Determinants of household debt in OECD countries," Greenwich Papers in Political Economy 18276, University of Greenwich, Greenwich Political Economy Research Centre.
    5. Kirschenmann, Karolin & Malinen, Tuomas & Nyberg, Henri, 2016. "The risk of financial crises: Is there a role for income inequality?," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 161-180.

    More about this item


    Income inequality; Household debt; Panel cointegration; C23; D31; E25;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution


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