Household finance and the welfare state: a case study of the United States, 1980-­2010

Eddie Gerba () and Waltraud Schelkle

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The sharp rise in household finance, both in debt and in assets, is one of the striking empirical facts about the US economy of the last two decades. But it is still not clear what caused it. Economists, both mainstream and heterodox, seek an explanation in financial market innovation and liberalization. But it is hard to find systematic evidence for this link. Our paper takes up another line of inquiry. Political economists have started to ask how the restructuring of the welfare state may have affected household finance. We use SVAR analysis to establish whether there is a link between the retrenchment of public social spending and the expansion of tax-­‐incentivised private social spending, on the one hand, and household finance variables on the other. More specifically, we ask whether the transformation of the US welfare state over the last 30 years has affected household finances through the channel of debt, leverage, or asset formation. Our findings suggest that the asset channel is empirically the most likely candidate and we point to some welfare state reforms that can support the operation of this channel since the mid-­‐1990s

Keywords: balance sheets; social spending; welfare reforms; financialisation; leverage cycles (search for similar items in EconPapers)
JEL-codes: E21 E62 G21 H31 H55 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2014-04-30
New Economics Papers: this item is included in nep-hme, nep-mac and nep-pbe
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Citations: View citations in EconPapers (1)

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