Abstract
This chapter aims to examine why and how rising income inequality in developed countries over the last four decades has led to higher household debt stock which in turn may increase the likelihood of financial crises. To do that, we run simple regressions over a sample of 31 OECD and/or EU member countries over the period of 1980–2020. We find that income inequality leads to higher household debt stock, but mainly in developed countries where the financial sector is more developed and interest rates are lower. These results, in line with the early literature, indicate that governments should implement appropriate tax and benefit policies to decrease income inequality, instead of using monetary policy as a temporary tool to alleviate the consequences of income inequality for low- and middle-income parts of the population.
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Ari, A., Cergibozan, R. (2023). Income Inequality, Household Debt, and Financial Crises. In: Ari, A. (eds) Capitalism at a Crossroads. Springer Studies in Alternative Economics. Springer, Cham. https://doi.org/10.1007/978-3-031-23257-2_6
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DOI: https://doi.org/10.1007/978-3-031-23257-2_6
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