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Inequality and Debt in a Model with Heterogeneous Agents

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  • Federico Ravenna
  • Nicolas Vincent

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.

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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 1408.

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Date of creation: 2014
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Handle: RePEc:lvl:lacicr:1408

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Keywords: Inequality; Debt; DSGE model;

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  1. Mark A. Aguiar & Mark Bils, 2011. "Has Consumption Inequality Mirrored Income Inequality?," NBER Working Papers 16807, National Bureau of Economic Research, Inc.
  2. Romain Ranciere & Michael Kumhof, 2010. "Inequality, Leverage and Crises," IMF Working Papers 10/268, International Monetary Fund.
  3. Matteo Iacoviello, 2006. "Household Debt and Income Inequality, 1963-2003," 2006 Meeting Papers 585, Society for Economic Dynamics.
  4. Orazio Attanasio & Erik Hurst & Luigi Pistaferri, 2012. "The Evolution of Income, Consumption, and Leisure Inequality in The US, 1980-2010," NBER Working Papers 17982, National Bureau of Economic Research, Inc.
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