Macro-prudential policy, income inequality, and economic growth: A systematic literature review

The debate on economic stability, viewed from the perspectives of economic growth and equitable income distribution, remains a crucial issue. The discussion between economic growth and income inequality has been long and complex and often includes a discussion of the trade-offs and relationships between these two economic phenomena. Studies have shown that more equal societies frequently experience more sustainable and stable economic growth. High inequality can trigger other risks that can prevent economic progress. Reducing inequality through investment in education will increase labour productivity and innovation. Therefore, it is necessary to provide policies that can satisfy both objectives. Macroprudential policies that are well calibrated can promote long-term economic growth by preventing financial crises. While macroprudential policies promote financial stability, their design and implementation may unintentionally affect income inequality. Therefore, with the complexity of achieving the objectives of stabilizing economic growth and reducing income inequality, effective policies that can address both are required. This study aims to systematically examine the linkages between macro-prudential policies, income inequality, and economic growth. To provide a systematic review of the literature, this study adopts a Prisma-based flowchart model to achieve a deeper understanding. The study formulates three research questions regarding the relationship between these variables. The research findings show that emerging studies include macro-prudential policy measures, including loan-to-value (LTV) ratios and debt-to-income (DTI) ratios; authorities can control overborrowing and excessive speculation, making housing more accessible and prevent wealth accumulation, thereby enabling wealth distribution.