Inequality, Leverage, and Crises

Michael Kumhof, Romain Ranciere and Pablo Winant
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Pablo Winant: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession.

Keywords: household leverage; crises (search for similar items in EconPapers)
Date: 2015-03
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Citations: View citations in EconPapers (221)

Published in American Economic Review, 2015, 105 (3), pp.1217-1245. ⟨10.1257/aer.20110683⟩

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Related works:
Journal Article: Inequality, Leverage, and Crises (2015)
Working Paper: Inequality, Leverage, and Crises (2015)
Working Paper: Inequality, Leverage and Crises (2011)
Working Paper: Inequality, Leverage and Crises (2011)
Working Paper: Inequality, Leverage and Crises (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01207208

DOI: 10.1257/aer.20110683

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