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

Authors

Olivier Coibion

Yuriy Gorodnichenko

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2016-20 | August 1, 2016

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.

Article Citation

Mondragon, John, Marianna Kudlyak, Olivier Coibion, and Yuriy Gorodnichenko. 2016. “Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data,” Federal Reserve Bank of San Francisco Working Paper 2016-20. Available at https://doi.org/10.24148/wp2016-20

About the Authors
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Marianna Kudlyak is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Marianna Kudlyak
John Mondragon
John Mondragon is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about John Mondragon