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Varieties of Capitalism, Increasing Income Inequality, and the Sustainability of Long-Run Growth

Mark Setterfield () and Yun Kim

No 1806, Working Papers from New School for Social Research, Department of Economics

Abstract: We model US household debt accumulation during the neoliberal boom as a response to emulation e ects and the decline of the social wage, which has "privatized" an increasing share of the costs of providing for services such as health and education. The debt dynamics of the US economy are then studied under alternative assumptions about the con guration of distributional variables, which is shown to differ across varieties of capitalism that have "neoliberalized" to di erent degrees. A key result is that distributional change alone will not make US neoliberal capitalism financially sustainable due, in part, to the paradoxical nature of inequality as a spur to household borrowing, and hence a source of both demand-formation and financial fragility. Achieving sustainability requires, instead, more wide-ranging reform.

Keywords: Varieties of capitalism; neoliberalism; inequality; growth; financial fragility; financial sustainability (search for similar items in EconPapers)
JEL-codes: E12 E44 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pke
Date: 2018-07
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http://www.economicpolicyresearch.org/econ/2018/NSSR_WP_062018.pdf First version, 2018 (application/pdf)

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