Income inequality and wealth concentration in the recent crisis

This article shows that the increase of income inequality and global wealth concentration was an important driver for the financial and Eurozone crisis. The high levels of income inequality resulted in balance of payment imbalances and growing debt levels. Rising wealth concentration contributed to the crisis because the increasing asset demand from the rich played a key role in the growth of the structured credit market and enabled poor and middle-income households to accumulate increasing amounts of debt. This analysis is the first that puts both income and wealth inequality to the epicentre of the recent crisis, and is crucial for social scientists researching on not just the effects but also the causes of the crisis related to inequality. Our findings strongly suggest that the policy response to the crisis must not be limited to financial regulation but should involve policies to address inequality by increasing the bargaining power of labour as well as redistributive tax policies.