EconPapers    
Economics at your fingertips  
 

Household debt: The missing link between inequality and secular stagnation

Dette des ménages: le lien manquant entre les inégalités et la stagnation séculaire

Gaël Giraud () and Matheus Grasselli ()
Additional contact information
Gaël Giraud: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, AFD - Agence française de développement
Matheus Grasselli: Department of Mathematics and Statistics, McMaster University, Hamilton, Canada

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: How do inequality and growth evolve in the long run and why? We address this question by analyzing the interplay between household debt, growth and inequality within a monetary, stock-flow consistent framework. We first consider a Goodwin–Keen model where household consumption, rather than investment by firms, is the key behavioural driver for the dynamics of the economy. Whenever consumption exceeds current income, households can borrow from the banking sector. The resulting three dimensional dynamical system for wage share, employment rate, and household debt exhibits the characteristic asymptotic equilibria of the original Keen model, namely the analogue of Solow's balanced-growth path, where all state variables converge to an interior point, in addition to deflationary equilibria with explosive debt and collapsing employment. We then extend this set-up by separating the household sector into workers and investors, obtaining a four-dimensional system with analogous types of asymptotic behaviour. Our main result is that long-run increasing inequality between these two classes of households occurs if and only if the system approaches one of the equilibria with unbounded debt ratios. More specifically, we find that one essential channel of increased inequality is the wealth transfer from workers to investors due to interest paid on debt from the former to the latter. Finally, when properly rewritten, the celebrated inequality r > g turns out to be a necessary condition for the asymptotic stability of long-run debt-deflation. Our findings shed new light on the relationships between fairness and efficiency, and have implications for public economic policy.

Keywords: Stock-flow consistency; Goodwin; Keen; Household debt; NAIRU; InequalityStagnation (search for similar items in EconPapers)
Date: 2021
Note: View the original document on HAL open archive server: https://hal-paris1.archives-ouvertes.fr/hal-03102543
References: Add references at CitEc
Citations: Track citations by RSS feed

Published in Journal of Economic Behavior and Organization, Elsevier, inPress, ⟨10.1016/j.jebo.2019.03.002⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-03102543

DOI: 10.1016/j.jebo.2019.03.002

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2021-02-09
Handle: RePEc:hal:cesptp:hal-03102543