Banking sector crises and inequality (original) (raw)
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Effects of Banking Crises on Income Distribution–A Case Study
2010
Our paper investigates the change in income distribution, pre-and post-banking crises in Argentina and in Brazil. We find that in the case of Argentina, there is a strong evidence borne out by three different measures of income inequality that the redistribution of the income post crises are skewed in favor of the rich. For the case of Brazil, we are unable to resolve the question either way due to insufficient information in the dataset.
Does Income Inequality Have a Role in Financial Crises
Empirical evidence has identified that an increase in aggregate debt compared to aggregate income increases the risk of financial crises. At the same time, several authors have placed the blame for the Financial Crisis of 2008 on widening income inequality in developed countries, with a focus on its role in driving the extension of credit to households. This analysis therefore seeks to establish whether the aggregate bank loans to GDP ratio is dependent on inequality.
Inequality, credit and financial crises
Cambridge Journal of Economics, 2015
In the three decades leading up to the financial crisis of 2008/09, income inequality rose across much of the developed world. This has led to a vigorous debate as to whether widening inequality was somehow to blame for the crisis. At the heart of this debate is the question of whether rising inequality leads to private sector credit booms, which are, in turn, widely accepted as a macroeconomic risk factor. Despite growing interest, empirical evidence on an inequality-fragility relationship is limited. That which does exist fails to tip the balance of evidence conclusively one way or the other. This research adds to this scarce body of evidence. Based on an econometric analysis of a panel of eighteen OECD countries covering the period 1970-2007, this study finds a statistically significant, positive relationship between income concentration and private sector indebtedness when controlling for conventional credit determinants. The implications of such a relationship are twofold. First, the view that the distribution of income is irrelevant to macroeconomic outcomes (implicit in mainstream economic thought) needs a second look. Second, if policy makers wish to make the financial system more robust, they should cast the net wider than regulatory and monetary policy reforms, and consider the effects of changes to the distribution income.
Economic crises and Inequality
2011
Abstract Sustainability for a society means long-term viability, but also the ability to cope with economic crises and disasters. Just as with natural disasters, we can minimize the chance of them occurring and set in place policies to protect the world's citizens against their consequences. This paper is concerned with the impact of economic crises on the inequality of resources and with the impact of inequality on the probability of economic crises. Is it the poor who bear the brunt?
Distributional Effects of Crises: The Role of Financial Transfers
Policy Research Working Papers, 2003
Financial crises affect income distribution via different channels. We argue that financial transfers is an important channel, which has been overlooked by the literature. By analyzing data from the Mexican (1994-1995) and Argentine (2001-2002) crises, we investigate two types of financial transfers. First, we study transfers to the financial sector, going from non-participants to participants of the financial sector. Second, we explore transfers within the financial sector, which are transfers among participants of the financial sector, as those from small to large and foreign depositors. Our analysis suggests that financial transfers increase income inequality.
Distributional effects of crises: the financial channel [with comments]
2004
W ho pays for financial crises? What are the mechanisms for spreading the cost across different social groups? The literature is only beginning to provide answers to these crucial questions. Several papers measure the depth and duration of crises, defined as the cumulative output loss and recovery time, and conclude that these crises have been very costly for developed and emerging economies. The period 1973-97 registered more than forty-four crises in developed countries and ninetyfive in emerging markets, with average output losses of 6.25 percent and 9.21 percent of gross domestic product (GDP), respectively. Crises do not hit all groups of people equally. Several papers analyze how crises affect different ranges of the income distribution; they identify four main channels through which crises affect households and, in particular, the poor. 2 First, financial crises generally lead to slowdowns in economic activity and, consequently, to a reduction in labor demand.
Revista Finanzas y Politica Economica, 2017
It is widely accepted that inequality has increased sharply recently in developed countries, but no consensus exists so far about the importance of inequality in the financial crisis of 2007-2009. The aim of this article is to outline and contrast the theoretical underpinnings of Marxian, post-Keynesian, and mainstream crisis theories, and to compare their viewpoints regarding the role that income inequality played in the crisis. The results of this review suggest that, despite important differences in their theoretical concepts, several economists of these three strands offer a similar explanation on why income inequality was an important contributing factor to the financial crisis.
Distributional Effects of Crises: The Financial Channel
Economía, 2004
W ho pays for financial crises? What are the mechanisms for spreading the cost across different social groups? The literature is only beginning to provide answers to these crucial questions. Several papers measure the depth and duration of crises, defined as the cumulative output loss and recovery time, and conclude that these crises have been very costly for developed and emerging economies. The period 1973-97 registered more than forty-four crises in developed countries and ninetyfive in emerging markets, with average output losses of 6.25 percent and 9.21 percent of gross domestic product (GDP), respectively. Crises do not hit all groups of people equally. Several papers analyze how crises affect different ranges of the income distribution; they identify four main channels through which crises affect households and, in particular, the poor. 2 First, financial crises generally lead to slowdowns in economic activity and, consequently, to a reduction in labor demand.
The determinants of banking crises: Further evidence
2016
This paper employs a new dataset of 36 EU and OECD countries for the period 1961–2012 to test the importance of economic inequality in banking crises and to find new determinants of them. We estimated a panel logit model with population-averaged results, capturing the most relevant crisis determinants in the literature. By analyzing the impact of inequality on the risk of a banking crisis, we found a new transmission channel of inequality to a financial recession via deficit and obtained a significant and robust positive impact of inequality on the bank crisis probability. We also found evidence that distance to USA, France and Japan decreases the likelihood of a financial crisis. Finally, and contrary to the theory, we found a new determinant that increases the likelihood of a crisis: the accumulated experience of VAT.