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Income distribution and current account imbalances

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  • Christian A Belabed
  • Thomas Theobald
  • Till van Treeck

Abstract

We develop a three-country, stock-flow-consistent macroeconomic model to study the effects of changes in both personal and functional income distribution on national current account balances. The model is calibrated for the USA, Germany and China. Simulations suggest that a substantial part of the increase in household debt and the decrease in the current account in the USA since the early 1980s can be explained by the interplay of rising (top-end) household income inequality and institutions. On the other hand, the weak domestic demand and increasing current account balances of Germany and China since the mid-1990s are strongly related to shifts in the functional income distribution at the expense of the household sector.

Suggested Citation

  • Christian A Belabed & Thomas Theobald & Till van Treeck, 2018. "Income distribution and current account imbalances," Cambridge Journal of Economics, Oxford University Press, vol. 42(1), pages 47-94.
  • Handle: RePEc:oup:cambje:v:42:y:2018:i:1:p:47-94.
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    More about this item

    Keywords

    Income distribution; Current account imbalances; Relative income hypothesis; Household debt; Stock-flow consistency;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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