Does income inequality lead to banking crises in developing countries? Empirical evidence from cross-country panel data

Dong-Eun Rhee, Hyoungjong Kim

Research output: Contribution to journalArticle

Abstract

This study empirically examines whether increasing income inequality results in banking crises using panel data for 68 countries covering the years 1973 to 2010. The results show that developing countries with high inequality tend to have higher levels of domestic credit and that domestic credit booms increase the probability of banking crises. We also find that developing economies display direct channels from inequality to banking crises without an association with credit booms. We find no consistent evidence that income inequality contributes to banking crises in advanced economies. In developing countries, the probability of banking crises increases dramatically as income inequality levels increase: The probability of a systemic banking crisis within three years is 9.5% when the Gini is as low as 0.2 in developing countries and increases to 57.4% when the Gini is 0.4. These results are robust to several specifications.

Original languageEnglish
Pages (from-to)206-218
Number of pages13
JournalEconomic Systems
Volume42
Issue number2
DOIs
Publication statusPublished - 2018 Jun 1

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Empirical evidence
Income inequality
Panel data
Developing countries
Banking crisis
Gini
Credit booms
Developing economies
Credit

Keywords

  • Banking crisis
  • Household debt
  • Income inequality

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Does income inequality lead to banking crises in developing countries? Empirical evidence from cross-country panel data. / Rhee, Dong-Eun; Kim, Hyoungjong.

In: Economic Systems, Vol. 42, No. 2, 01.06.2018, p. 206-218.

Research output: Contribution to journalArticle

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