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Income Distribution, Consumer Debt, and Keeping Up with the Joneses: a Kaldor-Minsky-Veblen Model

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  • Yun Kim

    ()
    (Department of Economics, Trinity College)

  • Soon Ryoo

    ()
    (Department of Accounting, Finance, and Economics, Adelphi University)

Abstract

We extend Kaldor’s theory of income distribution to include workers’ debt accumulation and their motive to emulate rentiers’ consumption. Our results show that (i) the interaction between income distribution and emulation can produce instability, (ii) instability is more likely when the workers’ emulation motive is strong and bankers’ lending decisions are highly accommodating, and (iii) a plausible assumption on the nonlinearity of emulation behavior can generate a limit cycle by way of the Poincare- Bendixson theorem. Our analysis provides an alternative perspective on the secular increase in household indebtedness for the decades and the subsequent deleveraging process in the recent crisis.

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File URL: http://internet2.trincoll.edu/repec/WorkingPapers2013/WP13-02.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Trinity College, Department of Economics in its series Working Papers with number 1302.

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Length: 34 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:tri:wpaper:1302

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Keywords: income distribution; consumer debt; emulation; instability; limit cycle;

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References

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  1. Aldo Barba & Massimo Pivetti, 2009. "Rising household debt: Its causes and macroeconomic implications--a long-period analysis," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 33(1), pages 113-137, January.
  2. Ryoo, Soon, 2010. "Long waves and short cycles in a model of endogenous financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 163-186, June.
  3. Enrichetta Ravina, 2005. "Keeping Up with the Joneses: Evidence from Micro Data," 2005 Meeting Papers 557, Society for Economic Dynamics.
  4. Taylor, Lance & O'Connell, Stephen A, 1985. "A Minsky Crisis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(5), pages 871-85, Supp..
  5. Samuel Bowles & Yongjin Park, 2005. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(507), pages F397-F412, November.
  6. Heathcote, Jonathan & Perri, Fabrizio & Violante, Giovanni L, 2009. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006," CEPR Discussion Papers 7538, C.E.P.R. Discussion Papers.
  7. Skott,Peter, 2008. "Conflict and Effective Demand in Economic Growth," Cambridge Books, Cambridge University Press, number 9780521066310, 9.
  8. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(1), pages 307-362, February.
  9. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
  10. Matthieu Charpe & Peter Flaschel & Christian R. Proaño, 2012. "Income Distribution, Credit Rationing And Households' Debt," Metroeconomica, Wiley Blackwell, vol. 63(3), pages 458-492, 07.
  11. Thomas I. Palley, 2009. "Inside Debt and Economic Growth: A Cambridge - Kaleckian Analysis," IMK Working Paper 02-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  12. Tamim Bayoumi, 1992. "Financial Deregulation and Household Saving," Bank of England working papers 5, Bank of England.
  13. Matteo Iacoviello, 2008. "Household Debt and Income Inequality, 1963-2003," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(5), pages 929-965, 08.
  14. Kara, A. & Marques-Ibanez, D. & Ongena, S., 2011. "Securitization and Lending Standards: Evidence from the Wholesale Loan Market," Discussion Paper, Tilburg University, Center for Economic Research 2011-081, Tilburg University, Center for Economic Research.
  15. Yun Kim & Alan Isaac, 2011. "Consumer and Corporate Debt: A Neo-Kaleckian Synthesis," Working Papers, Trinity College, Department of Economics 1108, Trinity College, Department of Economics.
  16. Amitava Krishna Dutt, 2008. "The Dependence Effect, Consumption and Happiness: Galbraith Revisited," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(4), pages 527-550.
  17. Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, De Gruyter, vol. 3(2), pages 1-32, October.
  18. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, 07.
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