Household Debt, Consumption, and Income Inequality

Edmond Berisha, John Meszaros

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

Using the Johansen and Engle–Granger cointegration tests, we show that there is one cointegrating relationship between household debt, consumption, and income inequality in the United States for the period from 1929 to 2009. Given this result, we use a Vector Error-Correction model to further understand the dynamics among the three variables. Results indicate that increases in income inequality and consumption directly contribute to increases in household debt. Interestingly, the results reveal some feedback from household debt to income inequality. We also show that debt-driven consumption should be viewed with caution as the results show that increases in household debt correspond with future declines in the rate of consumption.

Original languageEnglish
Pages (from-to)161-176
Number of pages16
JournalInternational Economic Journal
Volume32
Issue number2
DOIs
StatePublished - 3 Apr 2018

Keywords

  • Income inequality
  • VECM
  • consumption
  • household debt

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