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Stylized facts on the interaction between income distribution and the Great Recession

  • Aiginger, Karl
  • Guger, Alois

There are several narratives connecting the financial crisis - as well as the Great Depression of the 1930s - with the functional or personal income distribution and its pre-crisis movements. The paper investigates whether this claim can be supported with evidence showing that the crisis was deeper in countries in which incomes were more polarized or where wage shares were lower. Empirical evidence for 37 mainly industrialized countries does not generally support the hypothesis that either the level of or the change in distribution was closely linked to the performance of a country during the crisis. Some evidence shows a tentatively improved performance if wage shares as well as polarization decreased. Declining wage shares could have increased the resilience of firms in the crisis; the lower income differences may have bolstered consumption of domestic goods. The existence of more compelling evidence for the impact of distribution on the crisis may have been diluted by the global character of economies. Savings in one country or region can lead to low interest rates as well as financial or real investment in other regions via international capital flows which might stop abruptly in the crisis.

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File URL: https://www.econstor.eu/bitstream/10419/71282/1/74127972X.pdf
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Paper provided by Kiel Institute for the World Economy (IfW) in its series Economics Discussion Papers with number 2013-25.

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Date of creation: 2013
Handle: RePEc:zbw:ifwedp:201325
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  1. Karl Aiginger & Matthias Firgo & Peter Huber, 2012. "Policy options for the development of peripheral regions and countries of Europe," WWWforEurope Policy Brief series 2, WWWforEurope.
  2. repec:spo:wpecon:info:hdl:2441/46mbanhapncmp6s9g2choh4pj is not listed on IDEAS
  3. Thomas Palley, 2005. "The Questionable Legacy of Alan Greenspan," Challenge, M.E. Sharpe, Inc., vol. 48(6), pages 17-31, November.
  4. Karl Aiginger, 2009. "The Great Recession vs. the Great Depression. Stylised Facts on Siblings that Were Given Different Foster Parents," WIFO Working Papers 354, WIFO.
  5. Aiginger, Karl, 2010. "The Great Recession versus the Great Depression: stylized facts on siblings that were given different foster parents," Economics Discussion Papers 2010-9, Kiel Institute for the World Economy (IfW).
  6. Jean-Paul Fitoussi & Francesco Saraceno, 2010. "Inequality and Macroeconomic Performance," Documents de Travail de l'OFCE 2010-13, Observatoire Francais des Conjonctures Economiques (OFCE).
  7. Habib, Bilal & Narayan, Ambar & Olivieri, Sergio & Sanchez, Carolina, 2010. "The Impact of the Financial Crisis on Poverty and Income Distribution: Insights from Simulations in Selected Countries," World Bank - Economic Premise, The World Bank, issue 7, pages 1-4, March.
  8. Thomas Palley, 2011. "America’s flawed paradigm: macroeconomic causes of the financial crisis and great recession," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(1), pages 3-17, February.
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