Inequality and Debt in a Model with Heterogeneous Agents

Federico Ravenna and Nicolas Vincent

Cahiers de recherche from CIRPEE

Abstract: We propose a DSGE model with income heterogeneity to help discriminate across competing explanations of the cross-sectional divergence in debt-to-income ratios in US data. We show that for a DSGE model to be consistent with the data, the divergence in income growth should not be anticipated and should happen in an economy with low cost of access to financial intermediation. Differential productivity growth across the top and bottom-income quantile of the population has a much smaller impact on debt accumulation by the bottom income-quantile relative to a cross-sectional tax reallocation.

Keywords: Inequality; Debt; DSGE model (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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Citations: View citations in EconPapers (5)

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Journal Article: Inequality and debt in a model with heterogeneous agents (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1408

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