Abstract
Evidence reveals that the NCA raises income inequality. Evidence from counterfactual approaches shows that the rise of growth of income inequality due tightening NCA shock exacerbates the decline in credit growth, residential investment growth and GDP growth. This evidence shows that the income inequality channel is a potent conduit that transmits the NCA shocks.
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Notes
- 1.
As the Banking Association of South Africa explains on their website: “credit enables people to spend money they don’t have, spend more money than they earn, use credit for ordinary purchases, use credit even when they have cash and use debt to pay off debt. The use of credit and poor money management skills often leads people into a situation of over-indebtedness where they are unable to service credit agreements.”
- 2.
The National Credit Act (35 of 2005) was introduced “to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect Consumers.”
- 3.
Based on total loans and advances.
- 4.
All models include various dummies which control for structural breaks and include the adoption of inflation targeting framework in February 2000 and economic growth recessions.
References
Frost, J., & van Stralen, R. (2017). Macroprudential policy and income inequality. Journal of International Money and Finance, 85, 278–290.
Gumata, N., & Ndou, E. (2017). Labour market and fiscal policy adjustments to shocks: The role and implications for price and financial stability in South Africa. Cham: Palgrave Macmillan.
Monin, P. (2017). Monetary policy, macroprudential regulation and inequality (ECP, Discussion Note 2017/2).
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Ndou, E., Mokoena, T. (2019). Is the Tightening in the National Credit Act a Driver of Growth of Income Inequality?. In: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19803-9_14
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DOI: https://doi.org/10.1007/978-3-030-19803-9_14
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