We estimate a panel vector autoregressive model to analyze the highly disputed relationship between debt and growth. While several studies indicate that high levels of sovereign debt hamper the growth prospects of a country, our results question this. Using data on 20 developed countries, we find no evidence for a robust effect on debt to growth, even for higher levels of sovereign debt. We do find a significant negative reverse effect of growth to debt, which explains the negative correlation.JEL classification: H63, O43, C33

Could macroeconomic factors such as income inequality be the real root cause of financial crises? We explore a broad variety of financial and macroeconomic variables and employ a general-to-specific model selection process to find the most reliable predictors of financial crises in developed countries over a period of more than 100 years. Our in-sample results indicate that income inequality has predictive power beyond loan growth and several other financial variables. Out-of-sample forecasts for individual predictors show that their predictive power tends to vary considerably over time, but income inequality has predictive power in each forecasting period.

Recent literature has presented arguments linking income inequality on the financial crash of 2007 -2009. One proposed channel is expected to work through bank credit. We analyze the relationship between income inequality and bank credit in panel cointegration framework, and find that they have a long-run dependency relationship. Results show that income inequality has contributed to the increase of bank credit in developed economies after the Second World War. JEL classification: C23, D31, G21

The relationship between income inequality and economic growth has been one of the most studied questions in the field of economics in recent years. Despite of this there is very little knowledge on the effect on income inequality to long-run growth. This paper addresses that issue using new measure of income inequality and panel data cointegration methods. Results imply that negative effect of income inequality on long-run growth is a dominant feature, but in some countries the effect of inequality is positive. Observed heterogeneity in the long-run effect also explains the controversial findings made on the short-/medium term effect. JEL classification: C21, C22, C23, O40

Recent literature has presented arguments linking income inequality on the financial crash of 2007 -2009. One proposed channel is expected to work through bank credit. We analyze the relationship between income inequality and bank credit in panel cointegration framework, and find that they have a long-run dependency relationship. Results show that income inequality has contributed to the increase of bank credit in developed economies after the Second World War. JEL classification: C23, D31, G21