Income Inequality, Credit-Financed Consumption, and Policy Uncertainty: A U.S. Analysis (1972–2025)

This study investigates whether rising income inequality fuels credit-financed household consumption in the United States, and how economic policy uncertainty affects credit, spending, and inequality. We estimate a vector autoregression with exogenous variables (VARX) in first differences using annual U.S. data for the 1972–2025 period, drawn from the U.S. Census Bureau and the Federal Reserve Economic Data. Inequality is measured by the Gini index and the 90th-/10th- and 50th-/10th-percentile income ratios. We find no evidence that rising inequality increases household credit growth. Instead, inequality affects spending directly, as a wider 90th-/10th-percentile gap raises expenditure growth. Policy uncertainty consistently reduces credit growth and widens the gap between middle and low incomes. Inequality is persistent: the 90th-/10th-percentile ratio partly corrects after a shock but retains about three-quarters of it and drifts upward, and its short-run changes are driven by consumption rather than credit. The study contributes aggregate time-series evidence that challenges the inequality–debt hypothesis, extends the credit-channel effect of policy uncertainty to household credit, and shows that its distributional cost falls on those at the bottom of the income distribution. The findings point to policy priorities in affordable credit access, income support, and macroprudential regulation.