XXVI Edition

14-15-16 December 2017"

Income Inequality and Banking Crises: Testing Directly the Level Hypothesis

Karlstroem Peter, University of Bologna
Bellettini Giorgio, University of Bologna
Delbono Flavio, University of Bologna
Pastorello Sergio, University of Bologna

We perform an econometric analysis to investigate the direct relationship between income inequality and the occurrence of banking crises. By means of logit regressions, we examine a panel of 33 advanced countries in the period 1970-2011. As opposed to other empirical studies, we focus on levels rather than growth rates of income inequality. We find a statistically significant positive relationship between the value of Gini index (on gross incomes) and the probability of banking crises. This result is confirmed when income distribution is summarized by the top 1% income share. Moreover, our findings are robust to a series of tests for example the exclusion of different groups of countries.

Area: Financial Stability

Keywords: income inequality, banking crises

Paper file

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