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The Surge of Wall Street and The Rise in Income Inequality - Do they share the same root ?

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  • Ngotran, Duong

Abstract

Since 1980, the U.S. economy has witnessed simultaneously two macroeconomic themes: (i) the substantial growth of the financial sector, and (ii) the significant rise in income inequality. At the same time, there was a crucial change in the financial market where a wide range of new financial assets were introduced. This paper, by presenting a simple model of the interaction between the financial and real sectors, shows that the appearance of new financial instruments can generate both above themes. It can also explain the dominance of Wall Street against Main Street (non-financial sectors) in the top income earners category.

Suggested Citation

  • Ngotran, Duong, 2015. "The Surge of Wall Street and The Rise in Income Inequality - Do they share the same root ?," MPRA Paper 67650, University Library of Munich, Germany, revised 20 Oct 2015.
    • Handle: RePEc:pra:mprapa:67650
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    References listed on IDEAS

    as
    1. Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, vol. 65(1), pages 1-42, February.
    2. Steven N. Kaplan & Joshua Rauh, 2010. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Chapters, in: Corporate Governance, National Bureau of Economic Research, Inc.
    3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    4. Emmanuel Saez & Gabriel Zucman, 2014. "Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," NBER Working Papers 20625, National Bureau of Economic Research, Inc.
    5. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    6. Alp Simsek, 2013. "Speculation and Risk Sharing with New Financial Assets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 1365-1396.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    New assets; financial innovation; income inequality;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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