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Household Debt, Consumption and Inequality
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Household Debt, Consumption and Inequality

Author

Listed:
  • Berrak Bahadir

    (Department of Economics, Florida International University)

  • Kuhelika De

    (Department of Economics, Grand Valley State University)

  • William D. Lastrapes

    (Department of Economics, University of Georgia)

Abstract

This paper examines the link between household credit shocks, consumption and income inequality at the national level. Empirically, we use country-speciï¬ c VAR models to estimate the dynamic responses of aggregate consumption to household credit shocks. We then show in cross-country regressions that the consumption response is more sensitive to such shocks in countries with higher levels of inequality, even after controlling for ï¬ nancial development. Theoretically, we construct and simulate a dynamic model based on the effect of inequality on the incidence of credit constraints, to illustrate potential causal mechanisms.

Suggested Citation

  • Berrak Bahadir & Kuhelika De & William D. Lastrapes, 2020. "Household Debt, Consumption and Inequality," Working Papers 2011, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:2011
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    More about this item

    Keywords

    credit constraints; credit shocks; income distribution; VAR; Gini coefficient; local projections;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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