IDEAS home Printed from https://ideas.repec.org/a/spr/soinre/v157y2021i2d10.1007_s11205-020-02535-0.html
   My bibliography  Save this article

Income Inequality and Financial Disturbances: Does Income Inequality Engender Financial Crises?

Author

Listed:
  • Omar Osman

    (National Research University, Higher School of Economics)

Abstract

This paper is an empirical study that used econometric techniques to analyze the causal relationship between income inequality and financial disturbances in developed economies. The author used annual data from panels of OECD countries. In this study, income distribution is represented by the share of GDP that accrued to the top 10 percent earners, wage share of GDP, and disposable income Gini Coefficient in annual data series. The test included three channels, through which income inequality may affect the financial system. The results suggest that the effect of income inequality on the national financial stability is ambiguous, as the study concluded that this effect is radically different according to the channel tested. The study found that a rise in income inequality has a negative impact on public finance, but it has a positive effect on the private debt market, and on the external balance from a financial stability standpoint.

Suggested Citation

  • Omar Osman, 2021. "Income Inequality and Financial Disturbances: Does Income Inequality Engender Financial Crises?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 157(2), pages 417-442, September.
    • Handle: RePEc:spr:soinre:v:157:y:2021:i:2:d:10.1007_s11205-020-02535-0
    DOI: 10.1007/s11205-020-02535-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11205-020-02535-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11205-020-02535-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    2. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    4. Laurence M. Ball & Davide Furceri & Mr. Daniel Leigh & Mr. Prakash Loungani, 2013. "The Distributional Effects of Fiscal Consolidation," IMF Working Papers 2013/151, International Monetary Fund.
    5. Remi Bazillier & Boris Najman, 2017. "Labour and Financial Crises: Is Labour Paying the Price of the Crisis?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(1), pages 55-76, March.
    6. Herzer, Dierk & Nunnenkamp, Peter, 2011. "FDI and income inequality: Evidence from Europe," Kiel Working Papers 1675, Kiel Institute for the World Economy (IfW Kiel).
    7. Dirk Kreuger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," Working Papers 02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. Joshua Aizenman & Yothin Jinjarak, 2012. "Income Inequality, Tax Base and Sovereign Spreads," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(4), pages 431-444, December.
    9. Sinha, Pankaj & Arora, Varun & Bansal, Vishakha, 2011. "Determinants of Public Debt for middle income and high income group countries using Panel Data regression," MPRA Paper 32079, University Library of Munich, Germany.
    10. Jeon, Kiyoung & Kabukcuoglu, Zeynep, 2018. "Income inequality and sovereign default," Journal of Economic Dynamics and Control, Elsevier, vol. 95(C), pages 211-232.
    11. Hutchison, Michael M & Noy, Ilan, 2005. "How Bad Are Twins? Output Costs of Currency and Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 725-752, August.
    12. Santo Milasi, 2014. "Top Income Shares and Budget Deficits," Rivista di Politica Economica, SIPI Spa, issue 1, pages 383-406, January-M.
    13. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111.
    14. Marina Azzimonti & Eva de Francisco & Vincenzo Quadrini, 2014. "Financial Globalization, Inequality, and the Rising Public Debt," American Economic Review, American Economic Association, vol. 104(8), pages 2267-2302, August.
    15. Matthew Brzozowski & Martin Gervais & Paul Klein & Michio Suzuki, 2010. "Consumption, Income, and Wealth Inequality in Canada," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 52-75, January.
    16. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    17. Mr. Romain Ranciere & Mr. Nathaniel A. Throckmorton & Mr. Michael Kumhof & Ms. Claire Lebarz & Mr. Alexander W. Richter, 2012. "Income Inequality and Current Account Imbalances," IMF Working Papers 2012/008, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    2. Carrera, Jorge & de la Vega, Pablo, 2021. "The impact of income inequality on public debt," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    3. Herradi, Mehdi El & Leroy, Aurélien, 2022. "The rich, poor, and middle class: Banking crises and income distribution," Journal of International Money and Finance, Elsevier, vol. 127(C).
    4. Rémi Bazillier & Jérôme Héricourt & Samuel Ligonnière, 2017. "Structure of Income Inequality and Household Leverage: Theory and Cross-Country Evidence," Working Papers 2017-01, CEPII research center.
    5. D'Orazio, Paola, 2019. "Income inequality, consumer debt, and prudential regulation: An agent-based approach to study the emergence of crises and financial instability," Economic Modelling, Elsevier, vol. 82(C), pages 308-331.
    6. Bodea, Cristina & Houle, Christian & Kim, Hyunwoo, 2021. "Do financial crises increase income inequality?," World Development, Elsevier, vol. 147(C).
    7. Bazillier, Rémi & Héricourt, Jérôme & Ligonnière, Samuel, 2021. "Structure of income inequality and household leverage: Cross-country causal evidence," European Economic Review, Elsevier, vol. 132(C).
    8. Bilin Neyapti, 2018. "Income distribution and economic crises," International Finance, Wiley Blackwell, vol. 21(3), pages 273-296, December.
    9. Domonkos, Tomas & Fisera, Boris & Siranova, Maria, 2023. "Income inequality as long-term conditioning factor of monetary transmission to bank rates," Economic Modelling, Elsevier, vol. 128(C).
    10. El-Shagi, Makram & Fidrmuc, Jarko & Yamarik, Steven, 2020. "Inequality and credit growth in Russian regions," Economic Modelling, Elsevier, vol. 91(C), pages 550-558.
    11. Andreasen, Eugenia & Sandleris, Guido & Van der Ghote, Alejandro, 2019. "The political economy of sovereign defaults," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 23-36.
    12. Minjie Deng, 2021. "Inequality, Taxation, and Sovereign Default Risk," Discussion Papers dp21-15, Department of Economics, Simon Fraser University.
    13. Dirk Bezemer & Anna Samarina, 2019. "Debt shift, financial development and income inequality," DNB Working Papers 646, Netherlands Central Bank, Research Department.
    14. Al-Hussami, Fares & Remesal, Álvaro Martín, 2012. "Current account imbalances and income inequality: Theory and evidence," Kiel Advanced Studies Working Papers 459, Kiel Institute for the World Economy (IfW Kiel).
    15. Mathonnat, Clément & Williams, Benjamin, 2020. "Does more finance mean more inequality in times of crisis?," Economic Systems, Elsevier, vol. 44(4).
    16. Brei, Michael & Ferri, Giovanni & Gambacorta, Leonardo, 2023. "Financial structure and income inequality," Journal of International Money and Finance, Elsevier, vol. 131(C).
    17. Carlos Bethencourt & Lars Kunze, 2015. "The political economics of redistribution, inequality and tax avoidance," Public Choice, Springer, vol. 163(3), pages 267-287, June.
    18. Jan Behringer & Till van Treeck, 2013. "Income distribution and current account: A sectoral perspective," IMK Working Paper 125-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    19. Jan Behringer & Till van Treeck, 2018. "Varieties of capitalism and growth regimes: the role of income distribution," IMK Working Paper 194-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    20. Petreski, Marjan & Jovanovic, Branimir, 2018. "Income Inequality and the Great Recession: A Comparative Study," MPRA Paper 87739, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:soinre:v:157:y:2021:i:2:d:10.1007_s11205-020-02535-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.