The role of fiscal policy in the link between income inequality and banking crises

ABSTRACT

This paper explores the link between income inequality and banking crises, when inequality is affected by fiscal policy. Using a two-stage probit least squares method and a panel of 21 countries, spanning the period 1971–2017, the findings indicate that inequality impacts the probability of banking crises through budget deficits, followed by government expenses.

KEYWORDS:

• Banking crises
• income inequality
• fiscal policy
• panel data

JEL CLASSIFICATION:

• E62
• E25
• G21

Disclosure statement

No potential conflict of interest was reported by the authors.