Increasing inequality and financial instability

Peter Skott

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: Rising inequality affects the composition of asset demands as well as aggregate demand. The poor have few financial assets and their portfolio is skewed towards fixed-income assets. The rich, by contrast, hold a large proportion of their wealth in stocks. Thus, an increase in inequality tends to raise the demand for stocks. This generates capital gains, and these gains can fuel a bubble, as desired portfolios shift further towards stocks. JEL Categories: E11, E21

Keywords: earnings inequality; portfolio composition; financial instability (search for similar items in EconPapers)
Date: 2011-10
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Citations: View citations in EconPapers (9)

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Journal Article: Increasing Inequality and Financial Instability (2013)
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