Out of balance? Revisiting the nexus of income inequality, household debt, and current account imbalances after the Great Recession

Fabio Ascione () and Matthias Schnetzer
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Fabio Ascione: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: Rising current account imbalances around the globe preceded the Great Recession in the late 2000s. These imbalances narrowed significantly during the crisis mainly due to a negative demand shock and plummeting imports in deficit countries. While income inequality and household debt played a pivotal role in current account imbalances prior to the crisis, it is unclear whether these relations still hold when including the post-crisis era. We estimate current account determinants using a panel of 31 OECD countries over 45 years and include measures for functional and personal income distribution as well as household debt. We find a sustained relation between income inequality and current accounts when including the post-crisis period, while the link to household debt diminishes, indicating a change in the debt regime in a number of countries.

Keywords: Current account balance; income inequality; household debt; OECD; Great Recession (search for similar items in EconPapers)
Date: 2022-01
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Published in Cambridge Journal of Economics, 2022, 46 (1), pp.133-165. ⟨10.1093/cje/beab044⟩

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Journal Article: Out of balance? Revisiting the nexus of income inequality, household debt and current account imbalances after the Great Recession (2022)
Working Paper: Out of balance? Revisiting the nexus of income inequality, household debt, and current account imbalances after the Great Recession (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03346183

DOI: 10.1093/cje/beab044

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