The rich, poor, and middle class: Banking crises and income distribution

How do banking crises affect rich, middle-class and poor households? This paper quantifies the distributional implications of banking crises for a panel of 132 economies over the 1970-2017 period. We rely on different empirical settings, including an instrumental variable approach, that exploit the geographical diffusion of banking crises across borders. Our results show that banking crises systematically reduce the income share of rich households and positively affect middle-class households. We also find that income inequality increases during periods preceding the occurrence of a banking crisis. (c) 2022 Elsevier Ltd. All rights reserved.