Time-varying influence of household debt on inequality in United Kingdom

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Authors

Berisha, Edmond
Gabauer, David
Gupta, Rangan
Lau, Chi Keung Marco

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Publisher

Springer

Abstract

The United Kingdom (UK) in terms of income inequality is ranked among the highest in Europe. Likewise, within the last four decades, UK is characterized with drastic increases in household debt. In this paper, we analyze time-varying predictability of growth in household debt for growth in income (and consumption) inequality based on a high-frequency (quarterly) data set over 1975:Q2 to 2016:Q1. Results indicate that the growth in household debt has a strong predictive power, both for within and out-of-samples, on growth rate of income (and consumption) inequality in the UK. Interestingly, the strength of the predictive power is found to have increased after 2008. Based on time-varying impulse response functions, we also find that higher growth rate in household debt corresponds with subsequent increases in income inequality.

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Keywords

Household debt, Inequality, Time-varying predictions, United Kingdom (UK)

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Citation

Berisha, E., Gabauer, D., Gupta, R. et al. Time-varying influence of household debt on inequality in United Kingdom. Empirical Economics 61, 1917–1933 (2021). https://doi.org/10.1007/s00181-020-01940-1.