Bank credit, financial flows, and distribution of income in the Eurozone

Using a flow-consistent dataset consisting of sectorial data covering Germany, France, Italy, and Spain over a 27 years span (1995–2021), this study examines how firms and households compete for funding when bank credit contracts and the government’s role in this conflict. It distinguishes between gross flows from bank credit and noncredit sources, including security liabilities and internal funds. The findings show that during credit slowdowns, firms (i) replace bank credit with nonloan liabilities and (ii) increase internal funds by diverting income from households. The latter result occurs through revenue concentration among larger firms and by limiting the value-added distribution to households. Except in Spain, households maintained consumption patterns, making consumption countercyclical post-2008, although sharply disrupted by fiscal austerity in 2012–13. Overall, fiscal policies favored large corporations: during industrial consolidation, they eased distributional tensions, while in periods of income decline or stagnation, they shifted the burden onto households.