Abstract
This study empirically examines whether increasing income inequality results in banking crises using panel data for 68 countries covering the years 1973 to 2010. The results show that developing countries with high inequality tend to have higher levels of domestic credit and that domestic credit booms increase the probability of banking crises. We also find that developing economies display direct channels from inequality to banking crises without an association with credit booms. We find no consistent evidence that income inequality contributes to banking crises in advanced economies. In developing countries, the probability of banking crises increases dramatically as income inequality levels increase: The probability of a systemic banking crisis within three years is 9.5% when the Gini is as low as 0.2 in developing countries and increases to 57.4% when the Gini is 0.4. These results are robust to several specifications.
| Original language | English |
|---|---|
| Pages (from-to) | 206-218 |
| Number of pages | 13 |
| Journal | Economic Systems |
| Volume | 42 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2018 Jun |
Bibliographical note
Funding Information:The authors are grateful to the Editor, Prof. Dr. Richard Frensch, and two anonymous referees for their helpful comments and suggestions. All remaining errors are the authors’ responsibility. Hyoungjong Kim acknowledges financial support from the Korean Government ( 2014S1A2A2027803 ).
Funding Information:
The authors are grateful to the Editor, Prof. Dr. Richard Frensch, and two anonymous referees for their helpful comments and suggestions. All remaining errors are the authors’ responsibility. Hyoungjong Kim acknowledges financial support from the Korean Government (2014S1A2A2027803).
Publisher Copyright:
© 2018
Keywords
- Banking crisis
- Household debt
- Income inequality
ASJC Scopus subject areas
- Economics and Econometrics
