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Income Inequality, Household Debt, and Consumption Growth in the United States

Author

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  • Ying’ai Piao

    (Northeast Asian Research Center, Jilin University, No. 2699 Qianjin Street, Changchun 130012, China)

  • Meiru Li

    (Northeast Asian Studies College, Jilin University, No. 2699 Qianjin Street, Changchun 130012, China)

  • Hongyuan Sun

    (School of Business and Management, Jilin University, No. 2699 Qianjin Street, Changchun 130012, China)

  • Ying Yang

    (Party School of Nantong Municipal Committee of CPC, No. 268 Xingcheng Street, Nantong 226000, China)

Abstract

In this paper, the SV-TVP-VAR model is used to study the relationships between income inequality, household debt, and consumption growth in the US. This is of great significance for studying whether household debt can become a “substitute” for income and whether it is possible to achieve sustainable growth in consumption under the background of worsening income inequality. According to the research results, the main conclusions are as follows: Firstly, the widening of income inequality would increase consumption in the short term but restrain consumption in the medium and long term, as the relationship between them would turn from positive to negative. Secondly, household debt could improve consumption in the short term but reduce consumption in the medium and long term, with long-term effects being greater than medium-term effects, which means that the long-term negative impact of US household debt on household consumption would be persistent. Lastly, widening income inequality has led to rising household debt over different maturities.

Suggested Citation

  • Ying’ai Piao & Meiru Li & Hongyuan Sun & Ying Yang, 2023. "Income Inequality, Household Debt, and Consumption Growth in the United States," Sustainability, MDPI, vol. 15(5), pages 1-13, February.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:5:p:3910-:d:1075624
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    2. Juniours Marire, 2024. "Interactive influence of house prices and the repo rate on household debt in South Africa," Journal of Economic Analysis, Anser Press, vol. 3(1), pages 58-78, March.
    3. Nicholas Bamegne Nambie & Philomena Dadzie & Dorcas Oye Haywood-Dadzie, 2023. "Measuring the Effect of Income Inequality, Financial Inclusion, Investment, and Unemployment, on Economic Growth in Africa: A Moderating Role of Digital Financial Technology," International Journal of Economics and Financial Issues, Econjournals, vol. 13(4), pages 111-124, July.
    4. Jonathan Heathcote & Fabrizio Perri & Giovanni Violante & Lichen Zhang, 2023. "More Unequal We Stand? Inequality Dynamics in the United States, 1967–2021," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 50, pages 235-266, October.

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