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Inequality and Debt in a Model with Heterogeneous Agents

  • Federico Ravenna
  • Nicolas Vincent

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.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 1408.

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Date of creation: 2014
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Handle: RePEc:lvl:lacicr:1408
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  1. repec:pri:cepsud:113krusell is not listed on IDEAS
  2. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L, 2005. "The Effects of Technical Change on Labour Market Inequalities," CEPR Discussion Papers 5025, C.E.P.R. Discussion Papers.
  3. Matteo Iacoviello, 2006. "Household Debt and Income Inequality, 1963-2003," 2006 Meeting Papers 585, Society for Economic Dynamics.
  4. Mark Bils & Mark Aguiar, 2010. "Has Consumption Inequality Mirrored Income Inequality?," 2010 Meeting Papers 1334, Society for Economic Dynamics.
  5. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
  6. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
  7. Romain Ranciere & Michael Kumhof, 2010. "Inequality, Leverage and Crises," IMF Working Papers 10/268, International Monetary Fund.
  8. 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.
  9. 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.
  10. 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.
  11. repec:cbo:report:42729 is not listed on IDEAS
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