This paper examines the link between household credit shocks, consumption and income
inequality at the national level. Empirically, we use country-specific VAR models to estimate
the dynamic responses of aggregate consumption to household credit shocks. We then
show in cross-country regressions that the consumption response is more sensitive to such
shocks in countries with higher levels of inequality, even after controlling for financial
development. Theoretically, we construct and simulate a dynamic model based on the effect …