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The Political Economy of Easy Credit Policies

Author

Listed:
  • Thibault Darcillon

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Karim Azizi

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Over the past thirty years, U.S. economic growth has disproportionately benefited the richest percentiles of the American population, i.e., the top income earners. Although this phenomenon is difficult to explain from a "standard" political economy perspective (i.e., majority voting), recent literature emphasizes the role of consumer credit as a means of circumventing costly public redistribution. According to this theory, most OECD and, notably, American policymakers should have facilitated middle-class and low-income households' access to consumer credit to cushion the effects of increased income inequality (i.e., an increased share of GDP held by top earners). Our contribution to this literature is to argue that increases in inequality (as measured by expansions in the share of GDP held by top income earners) should be associated with aggregate consumption increases. Indeed, in response to increased inequality, easy credit policies stimulate low-income and middle-class consumption, which contributes to an increased aggregate consumption level. Using a panel dataset of 20 developed OECD economies between 1980 and 2007, we show that such increases in inequality are actually associated with expansions of aggregate consumption. Finally, when computing marginal effects, we conclude that these expansions increase with the size of the financial sector.

Suggested Citation

  • Thibault Darcillon & Karim Azizi, 2014. "The Political Economy of Easy Credit Policies," Post-Print hal-01248987, HAL.
  • Handle: RePEc:hal:journl:hal-01248987
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    Cited by:

    1. Evelyne Huber & Bilyana Petrova & John D. Stephens, 2018. "Financialization and Inequality in Coordinated and Liberal Market Economies," LIS Working papers 750, LIS Cross-National Data Center in Luxembourg.

    More about this item

    Keywords

    top incomes; income inequality; consumer credit; financialization; aggregate consumption; political economy;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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