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Income inequality and credit expansion in post-communist countries

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  • Milica Latinovic
  • Nela Milosevic

Abstract

There is an on-going debate on the antecedents and consequences of income inequality. Recent studies find that income inequality was a cause of the recent financial crisis. However, the findings on the inequality–indebtedness relationship are mixed and based on analyses of developed countries. The aim of this research is to test how income inequality influences borrowing in post-communist countries, whose financial markets are not very developed, which has important implications for income inequality. Therefore, we include financial system development in the analysis. We base our analysis on state-level panel data and find that income inequality will increase indebtedness in the private sector. However, these results are model and region specific. To preclude higher income inequality and the emergence of a financial crisis, policies should be directed towards improving the role of financial intermediaries and stock markets.

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  • Milica Latinovic & Nela Milosevic, 2019. "Income inequality and credit expansion in post-communist countries," Post-Communist Economies, Taylor & Francis Journals, vol. 31(1), pages 106-122, January.
    • Handle: RePEc:taf:pocoec:v:31:y:2019:i:1:p:106-122
    DOI: 10.1080/14631377.2018.1443247
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    Cited by:

    1. El-Shagi, Makram & Fidrmuc, Jarko & Yamarik, Steven, 2020. "Inequality and credit growth in Russian regions," Economic Modelling, Elsevier, vol. 91(C), pages 550-558.

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