Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data

Coibion, Olivier; Gorodnichenko, Yuriy; Kudlyak, Marianna; Mondragon, John

doi:10.24148/wp2016-20

Working Paper

Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data

Abstract: Using household-level debt data over 2000-2012 and local variation in inequality, we show that low-income households in high-inequality regions (zip-codes, counties, states) accumulated less debt (relative to their income) than low-income households in lower-inequality regions, contrary to the prevailing view. Furthermore, the price of credit is higher and access to credit is harder for low-income households in high-inequality versus low-inequality regions. Lower quantities combined with higher prices suggest that the debt accumulation pattern by household income across areas with different inequality is a result of credit supply rather than credit demand. We propose a lending model to illustrate the mechanism.

JEL Classification: D14; E21; E51; G21;

https://doi.org/10.24148/wp2016-20