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Income distribution and the current account

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  • Behringer, Jan
  • van Treeck, Till

Abstract

In this paper, we investigate whether changes in income distribution can explain current account developments in a sample of 20 countries for the period 1972–2007. We analyze the relationship between the personal and the functional income distribution in our sample, before disentangling their effects on the current account. A consistent finding is that rising (top-end) personal inequality leads to a decrease of the current account, controlling for standard current account determinants. By contrast, a fall in the share of wages in national income leads to an increase in the current account. We further analyze how different measures of income distribution affect the financial balances of the household, corporate and government sectors and discuss potential theoretical explanations of our findings. We conclude that changes in personal and functional income distribution have contributed considerably to the widening of current account balances, and hence to the instability of the international economic system, prior to the global financial crisis starting in 2007.

Suggested Citation

  • Behringer, Jan & van Treeck, Till, 2018. "Income distribution and the current account," Journal of International Economics, Elsevier, vol. 114(C), pages 238-254.
  • Handle: RePEc:eee:inecon:v:114:y:2018:i:c:p:238-254
    DOI: 10.1016/j.jinteco.2018.06.006
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    Cited by:

    1. van Treeck, Till & Behringer, Jan, 2019. "The corporate sector and the current account," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203632, Verein für Socialpolitik / German Economic Association.
    2. Bazillier, Rémi & Héricourt, Jérôme & Ligonnière, Samuel, 2021. "Structure of income inequality and household leverage: Cross-country causal evidence," European Economic Review, Elsevier, vol. 132(C).
    3. Gräbner, Claudius & Heimberger, Philipp & Kapeller, Jakob & Landesmann, Michael & Schütz, Bernhard, 2021. "The evolution of debtor-creditor relationships within a monetary union: Trade imbalances, excess reserves and economic policy," ifso working paper series 10, University of Duisburg-Essen, Institute for Socio-Economics (ifso).
    4. Vinicius Curti Cicero & Gilberto Tadeu Lima, 2020. "Functional Distribution of Income as a Determinant of Importing Behavior: An Empirical Analysis," Working Papers, Department of Economics 2020_25, University of São Paulo (FEA-USP).
    5. Campi, Mercedes & Dueñas, Marco & Fagiolo, Giorgio, 2020. "Specialization in food production, global food security and sustainability," Working papers 30, Red Investigadores de Economía.
    6. Hein, Eckhard, 2020. "Financialisation and stagnation: A macroeconomic regime perspective," IPE Working Papers 149/2020, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    7. Hein, Eckhard & Prante, Franz, 2018. "Functional distribution and wage inequality in recent Kaleckian growth models," IPE Working Papers 110/2018, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    8. Braun, Benjamin & Deeg, Richard, 2019. "Strong firms, weak banks: The financial consequences of Germany's export-led growth model," MPIfG Discussion Paper 19/5, Max Planck Institute for the Study of Societies.
    9. Allen, Cían, 2019. "Revisiting external imbalances: Insights from sectoral accounts," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 67-101.
    10. Eckhard Hein & Judith Martschin, 2020. "The Eurozone in Crisis — A Kaleckian Macroeconomic Regime and Policy Perspective," Review of Political Economy, Taylor & Francis Journals, vol. 32(4), pages 563-588, October.
    11. Alberto Cardaci & Francesco Saraceno, 2019. "Inequality and imbalances: a monetary union agent-based model," Journal of Evolutionary Economics, Springer, vol. 29(3), pages 853-890, July.
    12. Lucia Granelli & Martin Habet & Guergana Stanoeva & Gaetano D’Adamo & Robert Gampfer, 2020. "Puzzles in Non-Financial Corporate Sector Savings across the G20," European Economy - Economic Briefs 063, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    13. Zhai, Weiyang & Yoshida, Yushi, 2020. "Revisiting the Glick-Rogoff Current Account Model: An Application to the Current Accounts of BRICS Countries," MPRA Paper 99446, University Library of Munich, Germany.
    14. Jan Behringer & Till van Treeck & Achim Truger, 2020. "Das deutsche Modell: Wie kann der Leistungsbilanzüberschuss abgebaut werden?," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(10), pages 753-757, October.
    15. Simeon Coleman & Juan Carlos Cuestas, 2019. "Current account and structural change in European transition economies," Working Papers 2019/08, Economics Department, Universitat Jaume I, Castellón (Spain).
    16. Jan Behringer, 2019. "Factor shares and the rise in corporate net lending," IMK Working Paper 202-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    17. Jan Behringer, 2019. "Factor shares and the rise in corporate net lending," IMK Working Paper 202-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    18. Daryna Grechyna, 2020. "Current account and international networks," Review of International Economics, Wiley Blackwell, vol. 28(5), pages 1269-1294, November.
    19. Andrea Coveri & Mario Pianta, 2019. "The Structural Dynamics of Income Distribution:Technology, Wages and Profits," Working Papers 1901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2019.
    20. Yuriy Bilan & Halyna Mishchuk & Natalia Samoliuk & Halyna Yurchyk, 2020. "Impact of Income Distribution on Social and Economic Well-Being of the State," Sustainability, MDPI, Open Access Journal, vol. 12(1), pages 1-15, January.
    21. Jan Behringer & Till van Treeck, 2018. "Revisiting debt-led and export-led growth models: a sectoral balances approach," IMK Working Paper 195-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    22. Till van Treeck & Judith Niehues & Galina Kolev & Piotr Pysz & Peter Hampe & Andreas Peichl & Marc Stöckli & Georg Cremer, 2018. "Wie gerecht ist die Welt? – Soziale Ungleichheit und Wirtschaftswachstum," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(15), pages 03-25, August.
    23. Sturn, Simon & Epstein, Gerald, 2021. "How much should we trust five-year averaging to purge business cycle effects? A reassessment of the finance-growth and capital accumulation-unemployment nexus," Economic Modelling, Elsevier, vol. 96(C), pages 242-256.
    24. Jan Behringer & Till van Treeck & Achim Truger, 2020. "How to reduce Germany's current account surplus?," Working Papers 8, Forum New Economy.
    25. Mai Chi Dao & Chiara Maggi, 2018. "The Rise in Corporate Saving and Cash Holding in Advanced Economies: Aggregate and Firm Level Trends," IMF Working Papers 2018/262, International Monetary Fund.

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    More about this item

    Keywords

    Income inequality; Factor shares; Current account determinants; Global financial crisis;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G3 - Financial Economics - - Corporate Finance and Governance

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