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Austerity, Inequality, and Private Debt Overhang

Mathias Klein and Roland Winkler ()

No 1633, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Using panel data of 17 OECD countries for 1980-2011, we find that the distributional consequences of fiscal consolidations depend significantly on the level of private indebtedness. Austerity leads to a strong and persistent increase in income inequality during periods of private debt overhang. In contrast, there are no discernible distributional effects when private debt is low. This result is robust to alternative identifications of fiscal consolidations, to different ways of defining periods of private debt overhang, and to controlling for the state of the business cycle. We explore different channels through which our findings can be rationalized.

Keywords: austerity; fiscal policy; inequality; private debt; local projections (search for similar items in EconPapers)
JEL-codes: E62 E64 D63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017
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Related works:
Journal Article: Austerity, inequality, and private debt overhang (2019) Downloads
Working Paper: Austerity, Inequality, and Private Debt Overhang (2017) Downloads
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