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Inequality, Relative Deprivation and Financial Distress: Evidence from Swedish Register Data

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  • Roth, Paula

    (Research Institute of Industrial Economics (IFN))

Abstract

Several studies have linked rising insolvency rates to increasing inequality and argued that this might be explained by individuals’ desire to “Keep up with the Joneses”. Using unique administrative register data on individual insolvencies in Sweden, I test whether the probability to become insolvent is related to inequality in one’s reference group or to one’s income distance relative to peers. Identification relies on area fixed effects, an extensive set of background characteristics and varying the definition of relevant reference groups. I find that there is a positive relationship between inequality and insolvency, where a 10 percent increase in top incomes increases the individual probability to become insolvent by 12 percent.

Suggested Citation

  • Roth, Paula, 2020. "Inequality, Relative Deprivation and Financial Distress: Evidence from Swedish Register Data," Working Paper Series 1374, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:1374
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    More about this item

    Keywords

    Inequality; Insolvency; Bankruptcy; Financial distress; Social interaction;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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