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Inequality and Debt in a Model with Heterogeneous Agents

Author

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  • Federico Ravenna
  • Nicolas Vincent

Abstract

We propose a DSGE model with income heterogeneity to help discriminate across competing explanations of the cross-sectional divergence in debt-to-income ratios in US data. We show that for a DSGE model to be consistent with the data, the divergence in income growth should not be anticipated and should happen in an economy with low cost of access to financial intermediation. Differential productivity growth across the top and bottom-income quantile of the population has a much smaller impact on debt accumulation by the bottom income-quantile relative to a cross-sectional tax reallocation.

Suggested Citation

  • Federico Ravenna & Nicolas Vincent, 2014. "Inequality and Debt in a Model with Heterogeneous Agents," Cahiers de recherche 1408, CIRPEE.
  • Handle: RePEc:lvl:lacicr:1408
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    References listed on IDEAS

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    1. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
    2. Mark Bils & Mark Aguiar, 2010. "Has Consumption Inequality Mirrored Income Inequality?," 2010 Meeting Papers 1334, Society for Economic Dynamics.
    3. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370 Elsevier.
    4. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
    5. Matteo Iacoviello, 2008. "Household Debt and Income Inequality, 1963-2003," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 929-965, August.
    6. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," American Economic Review, American Economic Association, vol. 105(3), pages 1217-1245, March.
    7. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
    8. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
    9. repec:pri:cepsud:113krusell is not listed on IDEAS
    10. repec:cbo:report:42729 is not listed on IDEAS
    11. Orazio Attanasio & Erik Hurst & Luigi Pistaferri, 2012. "The Evolution of Income, Consumption, and Leisure Inequality in The US, 1980-2010," NBER Working Papers 17982, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Salvatore Morelli & Anthony Atkinson, 2015. "Inequality and crises revisited," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 32(1), pages 31-51, April.
    2. repec:tek:journl:v:5:y:2016:i:1:p:71-107 is not listed on IDEAS
    3. Klein, Mathias & Krause, Christopher, 2014. "Income Redistribution, Consumer Credit,and Keeping up with the Riches," Ruhr Economic Papers 509, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    More about this item

    Keywords

    Inequality; Debt; DSGE model;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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