Does Credit Composition Have Asymmetric Effects on Income Inequality?

This paper studies the effects of credit to private non-financial sectors on income inequality. In particular, we focus on the distinction between household and firm credit, and investigate whether these two types of credit have adverse effects on income inequality. Using balanced panel data for 30 developed and developing countries over the period of 1995-2013, we show that firm credit reduces income inequality whereas there is no significant impact of household credit on income inequality. We conclude that not the size of private credit but the composition of it matters for reducing income inequality due to the asymmetric effects of different types of credit.