Can Income Inequality Affects Household Debt?

Abstract

The present study aims to evaluate the influence of income inequality on household debt by applying the dynamic GMM estimator to a database covering advanced and emerging countries over the period 1994 to 2019. The result shows that income inequality promotes the growth of household debt. Furthermore, higher house prices and financial development increase the household debt. Meanwhile, the economic growth, interest rate and unemployment have negative and significant effect on household debt. The finding of the study suggests the involved authorities formulate suitable policies and initiatives in order to monitor the increase in household debt. Indirectly, this measure can be useful to consider as an early warning signal for crises.