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Income Distribution, Consumer Debt, and Keeping Up with the Joneses: a Kaldor-Minsky-Veblen Model

  • Yun Kim

    ()

    (Department of Economics, Trinity College)

  • Soon Ryoo

    ()

    (Department of Accounting, Finance, and Economics, Adelphi University)

We extend Kaldor’s theory of income distribution to include workers’ debt accumulation and their motive to emulate rentiers’ consumption. Our results show that (i) the interaction between income distribution and emulation can produce instability, (ii) instability is more likely when the workers’ emulation motive is strong and bankers’ lending decisions are highly accommodating, and (iii) a plausible assumption on the nonlinearity of emulation behavior can generate a limit cycle by way of the Poincare- Bendixson theorem. Our analysis provides an alternative perspective on the secular increase in household indebtedness for the decades and the subsequent deleveraging process in the recent crisis.

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File URL: http://internet2.trincoll.edu/repec/WorkingPapers2013/WP13-02.pdf
File Function: First version, 2013
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Paper provided by Trinity College, Department of Economics in its series Working Papers with number 1302.

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Length: 34 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:tri:wpaper:1302
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Web page: http://www.trincoll.edu/Academics/MajorsAndMinors/Economics/Pages/default.aspx

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  1. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal we stand: an empirical analysis of economic inequality in the United States, 1967-2006," Staff Report 436, Federal Reserve Bank of Minneapolis.
  2. Alan G. Isaac & Yun K. Kim, 2013. "Consumer and Corporate Debt: A Neo- Kaleckian Synthesis," Metroeconomica, Wiley Blackwell, vol. 64(2), pages 244-271, 05.
  3. Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-32, October.
  4. Thomas I. Palley, 2009. "Inside Debt and Economic Growth: A Cambridge - Kaleckian Analysis," IMK Working Paper 02-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  5. Samuel Bowles & Yongjin Park, 2003. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right," Department of Economics University of Siena 409, Department of Economics, University of Siena.
  6. Tamim Bayoumi, 1992. "Financial Deregulation and Household Saving," Bank of England working papers 5, Bank of England.
  7. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, 07.
  8. Soon Ryoo, 2009. "Long waves and short cycles in a model of endogenous financial fragility," UMASS Amherst Economics Working Papers 2009-03, University of Massachusetts Amherst, Department of Economics.
  9. Enrichetta Ravina, 2005. "Keeping Up with the Joneses: Evidence from Micro Data," 2005 Meeting Papers 557, Society for Economic Dynamics.
  10. Matteo Iacoviello, 2005. "Household Debt and Income Inequality, 1963-2003," Boston College Working Papers in Economics 629, Boston College Department of Economics, revised 18 Oct 2007.
  11. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
  12. Taylor, Lance & O'Connell, Stephen A, 1985. "A Minsky Crisis," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 871-85, Supp..
  13. repec:cup:cbooks:9780521066310 is not listed on IDEAS
  14. Amitava Krishna Dutt, 2008. "The Dependence Effect, Consumption and Happiness: Galbraith Revisited," Review of Political Economy, Taylor & Francis Journals, vol. 20(4), pages 527-550.
  15. Matthieu Charpe & Peter Flaschel & Christian R. Proaño, 2012. "Income Distribution, Credit Rationing And Households' Debt," Metroeconomica, Wiley Blackwell, vol. 63(3), pages 458-492, 07.
  16. 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.
  17. Aldo Barba & Massimo Pivetti, 2009. "Rising household debt: Its causes and macroeconomic implications--a long-period analysis," Cambridge Journal of Economics, Oxford University Press, vol. 33(1), pages 113-137, January.
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