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.
Ando, A., & Modigliani, F. (1963). The" life cycle" hypothesis of saving: Aggregate implications and tests. The American economic review, 53(1), 55-84.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
Bowsher, C. G. (2002). On testing overidentifying restrictions in dynamic panel data models. Economics letters, 77(2), 211-220.
Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The real effects of debt. Bank of International Settlement Publication.
Crawford, A., & Faruqui, U. (2011). What explains trends in household debt in Canada? Bank of Canada Review, 2011(Winter), 3-15.
De Vita, G., & Luo, Y. (2021). Financialization, household debt and income inequality: Empirical evidence. International Journal of Finance & Economics, 26(2), 1917-1937.
Friedman, M. (1957). Theory of the consumption function: princeton university press.
Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica: Journal of the Econometric Society, 1371-1395.
Jappelli, T., & Pagano, M. (1994). Saving, growth, and liquidity constraints. The Quarterly Journal of Economics, 109(1), 83-109.
Jappelli, T., Pagano, M., & Di Maggio, M. (2013). Households' indebtedness and financial fragility. Journal of Financial Management, Markets and Institutions, 1(1), 23-46.
Meniago, C., Mukuddem-Petersen, J., Petersen, M. A., & Mongale, I. P. (2013). What causes household debt to increase in South Africa? Economic Modelling, 33, 482-492.
Mian, A., Sufi, A., & Verner, E. (2015). Household Debt and Global Growth. NBER Working Paper, 21581.
Rashid, M. A. A., Sarmidi, T., Nor, A. H. S. M., & Noor, N. G. M. (2017). Does Income Gap Matter for Household Debt Accumulation? Institutions and Economies, 1-19.
Rubaszek, M., & Serwa, D. (2014). Determinants of credit to households: An approach using the life-cycle model. Economic Systems, 38(4), 572-587.
Samad, K. A., Daud, S. N. M., & Rusmita, S. A. (2022). Household Debt and Economic Growth: The Role of Institutional Quality. Pertanika Journal of Social Science and Humanities, 30 (3): 977 - 1001
Samad, K. A., Daud, M. S. N., & Dali, M. N. R. S. (2020). Determinants of household debt in emerging economies: A macro panel analysis. Cogent Business & Management, 7(1), 1831765.
Soto, M. (2009). System GMM Estimation With A Small Sample. Retrieved from https://core.ac.uk/download/pdf/36028815.pdf.
In-Text Citation: (Samad et al., 2022)
To Cite this Article: Samad, K. A., Rahman, N. H. A., Sani, A. A., Ahmad, K. S., Bustamam, K. S., Saidin, A., Adanan, S. A., & Mamat, S. N. (2022). Can Income Inequality Affects Household Debt? International Journal of Academic Research in Business and Social Sciences, 12(10), 1265– 1272.
Copyright: © 2022 The Author(s)
Published by Knowledge Words Publications (www.kwpublications.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
