%0 Report
        %A Coibion, Olivier
%A Gorodnichenko, Yuriy
%A Kudlyak, Marianna
%A Mondragon, John
        %T Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data
        %D 2014
        %8 2014 Jan
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 7910
        %U https://www.iza.org/publications/dp7910
        %X One suggested hypothesis for the dramatic rise in household borrowing that preceded the financial crisis is that low-income households increased their demand for credit to finance higher consumption expenditures in order to "keep up" with higherincome households. Using household level data on debt accumulation during 2001-2012, we show that low-income households in high-inequality regions accumulated less debt relative to income than their counterparts in lower-inequality regions, which negates the hypothesis.
We argue instead that these patterns are consistent with supply-side interpretations of debt accumulation patterns during the 2000s. We present a model in which banks use applicants' incomes, combined with local income inequality, to infer the underlying type of the applicant, so that banks ultimately channel more credit toward lower-income applicants in low-inequality regions than high-inequality regions. We confirm the predictions of the model using data on individual mortgage applications in high- and low-inequality regions over this time period.
        %K Great Recession
%K household debt
%K inequality