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Increasing inequality and financial instability

  • Peter Skott

    ()

    (University of Massachusetts Amherst)

Rising inequality affects the composition of asset demands as well as aggregate demand. The poor have few financial assets and their portfolio is skewed towards fixed-income assets. The rich, by contrast, hold a large proportion of their wealth in stocks. Thus, an increase in inequality tends to raise the demand for stocks. This generates capital gains, and these gains can fuel a bubble, as desired portfolios shift further towards stocks. JEL Categories: E11, E21

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File URL: http://www.umass.edu/economics/publications/2011-20.pdf
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Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2011-20.

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Date of creation: Oct 2011
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Handle: RePEc:ums:papers:2011-20
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  1. Palley, Thomas I., 2009. "America's exhausted paradigm: Macroeconomic causes of the financial crisis and great recession," IPE Working Papers 02/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  2. Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Working Papers wp153, Political Economy Research Institute, University of Massachusetts at Amherst.
  3. 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.
  4. Eckhard Hein, 2009. "‘Financialisation’ in a comparative static, stock-flow consistent post-kaleckian distribution and growth model," EKONOMIAZ, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 72(03), pages 120-139.
  5. Fabián Slonimczyk & Peter Skott, 2012. "Employment and Distribution Effects of the Minimum Wage," UMASS Amherst Economics Working Papers 2012-05, University of Massachusetts Amherst, Department of Economics.
  6. James Crotty, 2005. "The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era," Research Briefs rb2003-5, Political Economy Research Institute, University of Massachusetts at Amherst.
  7. Skott, Peter & Guy, Frederick, 2007. "A model of power-biased technological change," Economics Letters, Elsevier, vol. 95(1), pages 124-131, April.
  8. Kennickell, Arthur B & Starr-McCluer, Martha, 1997. "Retrospective Reporting of Household Wealth: Evidence from the 1983-1989 Survey of Consumer Finances," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 452-63, October.
  9. repec:cup:cbooks:9780521066310 is not listed on IDEAS
  10. Gerald Epstein & Arjun Jayadev, 2007. "The Correlates of Rentier Returns in OECD Countries," Working Papers wp123, Political Economy Research Institute, University of Massachusetts at Amherst.
  11. Skott, Peter, 1981. "On the 'Kaldorian' Saving Function," Kyklos, Wiley Blackwell, vol. 34(4), pages 563-81.
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