The inequality-credit linkage

In this paper, I analyzed the underlying mechanisms of the interaction between credit expansion and income inequality—inequality-credit interaction—and its influence on the economy. For this purpose, System and Difference GMM models were applied to assess the influence of the interaction on the triggering of banking crises 212 economies between 1970 and 2017. Furthermore, a Granger-Causality panel data test was applied, employing a maximum sample size of 216 world countries for the 1960–2021 period and balanced subsamples. The interaction was negatively related with risk of unchaining banking crises and led to economic growth. Robustness checks were applied, confirming the results.