The determinants of banking crises: Further evidence

Peña, Guillermo (2016): The determinants of banking crises: Further evidence.

Abstract

This paper employs a new dataset of 36 EU and OECD countries for the period 1961–2012 to test the importance of economic inequality in banking crises and to find new determinants of them. We estimated a panel logit model with population-averaged results, capturing the most relevant crisis determinants in the literature. By analyzing the impact of inequality on the risk of a banking crisis, we found a new transmission channel of inequality to a financial recession via deficit and obtained a significant and robust positive impact of inequality on the bank crisis probability. We also found evidence that distance to USA, France and Japan decreases the likelihood of a financial crisis. Finally, and contrary to the theory, we found a new determinant that increases the likelihood of a crisis: the accumulated experience of VAT.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banking Crisis, Inequality, Geographical Distance, VAT experience, Post-Keynesian Economics
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; G - Financial Economics > G0 - General > G01 - Financial Crises; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty

References

Atkinson, A. B., & Morelli, S. (2011): "Economic crises and Inequality”, UNDP-HDRO Occasional Papers, (2011/6).

Beck, T., Demirgüç-Kunt, A., & Levine, R. (2006): “Bank concentration, competition, and crises: First results”, Journal of Banking & Finance, 30(5), 1581-1603.

Bordo, M. D., & Meissner, C. M. (2012): “Does inequality lead to a financial crisis?”, Journal of International Money and Finance, 31(8), 2147-2161.

Boudriga, A., & Ghardallou, W. (2012, June): “The Determinants of Banking Crises: The Case of the 2008 Worldwide Financial Crisis”, In 29th International Conference of the French Finance Association (AFFI).

Burman, L. E., Rohaly, J., Rosenberg, J., and Lim, K. C. (2010): “Catastrophic budget failure”, National Tax Journal, 63(3), 561-584.

Büyükkarabacak, B., & Valev, N. T. (2010): “The role of household and business credit in banking crises”, Journal of Banking & Finance, 34(6), 1247-1256.

Claessens, S., and Perotti, E. (2007): “Finance and inequality: Channels and evidence”, Journal of Comparative Economics, 35(4), 748-773.

Demirgüç-Kunt, A. and Detragiache, E. (1998): “The Determinants of Banking Crises in Developing and Developed Countries”, IMF Staff Papers, 45, 81-109.

Demirguc-Kunt, A. and Detragiache, E. (2000): “Monitoring Banking Sector Fragility: A Multivariate Logit Approach”, The World Bank Economic Review, 14, 2, 287-307.

Demirgüç-Kunt, A. and E. Detragiache (1997): “The Determinants of Banking Crises – Evidence From Developing and Developed Countries”, IMF Working Paper No. 99147.

Desai, M. A., and Hines, J. R. Jr., (2005): “Value added taxes and international trade: the evidence”, (mimeo, Michigan: University of Michigan).

Gale, W. G and Harris, B. H. (2011): “A VAT for the United States: Part of the Solution”, Tax Analysts, 64-82.

Gavin, Michael; Hausmann, Ricardo (1996): “The Roots of Banking Crises: The Macroeconomic Context”, Working Paper, Inter-American Development Bank, Office of the Chief Economist, No. 318.

Hardy, D. C., & Pazarbaşioğlu, C. (1999): “Determinants and leading indicators of banking crises: Further evidence”, IMF staff papers, 247-258.

Kumhof, M., Rancière, R., (2011): “Inequality, Leverage and Crises”, IMF Working Paper 10/268.

Mayer, T. and Zignago, S. (2011): “Notes on CEPII’s distances measures: the GeoDist Database”, CEPII Working Paper 2011-25.

Morelli, S., and Atkinson, A. B. (2015): “Inequality and crises revisited”, Economia Politica, 32(1), 31-51.

Neuhuas, J.M., Kalbfleisch, J.D., Hauck, W.W. (1991): “A comparison of cluster-specific and population averaged approaches for analyzing correlated binary data”,International Statistical Review 59 (1), 25–35.

Rajan, R., (2010): "Fault Lines", Princeton University Press, Princeton, NJ.

Rose, A. K., and Spiegel, M. M. (2010): “Cross‐Country Causes and Consequences of the 2008 Crisis: International Linkages and American Exposure”, Pacific Economic Review, 15(3), 340-363.

Stockhammer, E. (2013): “Rising inequality as a cause of the present crisis”, Cambridge Journal of Economics, 39(3), 935-958.

Wooldridge, J. (2002): Econometric Analysis of Cross Section and Panel Data, The MIT Press, Cambridge.

Ye, Q., & Han, L. (2010, October): “The international propagation of shocks in international equity markets during the subprime mortgage crisis”, In Future Information Technology and Management Engineering (FITME), 2010 International Conference on (Vol. 2, pp. 468-471), IEEE.

Zeger, S., Liang, K., Albert, P., (1988): “Models for longitudinal data: a generalized estimating equation approach", Biometrics 44 (4), 1049–1060.