Increasing Inequality and Financial Instability

Peter Skott

Review of Radical Political Economics, 2013, vol. 45, issue 4, 478-488

Abstract: Rising inequality affects the composition of asset demands as well as aggregate demand. The poor have few financial assets and their portfolios are skewed towards fixed-income assets. The rich, by contrast, hold a large proportion of their wealth in stocks. Thus, an increase in inequality tends to raise the demand for stocks. This generates capital gains, and these gains can fuel a bubble, as desired portfolios shift further towards stocks.

Keywords: earnings inequality; portfolio composition; financial instability (search for similar items in EconPapers)
JEL-codes: E11 E21 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (14)

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Working Paper: Increasing inequality and financial instability (2011)
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