Do rising top incomes fuel credit expansion?

Mehdi El Herradi (1) , Aurélien Leroy (2)

1 AMSE - Aix-Marseille Sciences Economiques
2 Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales

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.

Keywords: Credit; Finance; Income inequality; Top income shares

Domains: Humanities and Social Sciences; Economics and Finance

Mehdi El Herradi, Aurélien Leroy. Do rising top incomes fuel credit expansion?. Economics Letters, 2020, 196, pp.109539. ⟨10.1016/j.econlet.2020.109539⟩. ⟨hal-03002536⟩