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Do rising top incomes fuel credit expansion?

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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… Click to show full 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.

Keywords: top incomes; credit; incomes fuel; rising top; credit expansion

Journal Title: Economics Letters
Year Published: 2020

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