Does Economic Inequality Cause Financial Crises?

Inequality rose rapidly in the run up to the 1929 stock market crash and the 2007 financial crisis. Both crises precipitated long and deep recessions. This paper seeks to determine if there is any deeper relationship between inequality and financial stability. The work presents an empirical investigation of the topic and theoretical model of how such a relationship could exist. My original contribution to the literature is threefold: (1) the empirical detection of a small interaction between economic inequality and propensity tofinancial crises, (2) the presentation of a novel measure of financial stability using principal component analysis and its interaction with economic inequality, and (3) the presentation of a novel theoretical model that demonstrates a possible mechanism by which inequality may reduce financial stability.