The circular relationship between inequality, leverage and financial crises

Bazillier, Rémi; Hericourt, Jérôme

Document type :

Article dans une revue scientifique

DOI :

10.1111/joes.12150

Title :

The circular relationship between inequality, leverage and financial crises

Author(s) :

Bazillier, Rémi [Auteur]
Laboratoire d'Économie d'Orleans [UMR7322] [LEO]
Centre d'économie de la Sorbonne [CES]
Hericourt, Jérôme [Auteur]
Lille économie management - UMR 9221 [LEM]
Centre d'Etudes Prospectives et d'Informations Internationales [CEPII]

Journal title :

Journal of Economic Surveys

Pages :

463-496

Publisher :

Wiley

Publication date :

2016

ISSN :

0950-0804

English keyword(s) :

Causality
Finance
Inequality
Institutions

HAL domain(s) :

Sciences de l'Homme et Société/Economies et finances

English abstract : [en]

In this paper, we put into perspective the recent literature which points to inequality as a possible cause of credit bubbles, by reintegrating it into a more general analysis on the two-way relationship between inequality ...
Show more >In this paper, we put into perspective the recent literature which points to inequality as a possible cause of credit bubbles, by reintegrating it into a more general analysis on the two-way relationship between inequality and finance. We focus more specifically on situations where high inequalities and widespread access to credit coexist, and argue that, even when institutions maintain more or less equal access to finance, there may be a dynamic, positive circular relationship between inequality and financial development. However, even if there is some evidence in the literature of a positive causal impact of inequality on credit, this does not preclude other important, cofounding factors. The conclusions concerning the distributional impact of finance are more ambiguous. A survey of the empirical literature highlights several issues that must be tackled. First, endogeneity: reverse causality and coincidental factors are major concerns. Second, the choice of consistent measurements for the key variables (both credit and inequality) has strong empirical implications, and must be grounded on relevant theoretical channels. Third, those circular dynamics have substantial policy implications for emerging economies, since an increasing number face a joint increase in inequality and credit.Show less >

Language :

Anglais

Peer reviewed article :

Oui

Audience :

Internationale

Popular science :

Non

Collections :

Lille Économie Management (LEM) - UMR 9221

Source :

Harvested from HAL

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