Do rising top incomes fuel credit expansion?
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.