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

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  • Aiginger, Karl
  • Guger, Alois

Abstract

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.

Suggested Citation

  • Aiginger, Karl & Guger, Alois, 2013. "Stylized facts on the interaction between income distribution and the Great Recession," Economics Discussion Papers 2013-25, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:201325
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    References listed on IDEAS

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    1. Jean-Paul Fitoussi & Francesco Saraceno, 2010. "Inequality and macroeconomic performance," Working Papers hal-01069429, HAL.
    2. Aiginger, Karl, 2010. "The Great Recession vs. the Great Depression: Stylized facts on siblings that were given different foster parents," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-41.
    3. 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.
    4. Anthony B. Atkinson & Salvatore Morelli, 2011. "Economic crises and Inequality," Human Development Research Papers (2009 to present) HDRP-2011-06, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
    5. 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.
    6. 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).
    7. Thomas Palley, 2005. "The Questionable Legacy of Alan Greenspan," Challenge, Taylor & Francis Journals, vol. 48(6), pages 17-31.
    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.
    9. repec:spo:wpecon:info:hdl:2441/46mbanhapncmp6s9g2choh4pj is not listed on IDEAS
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    Citations

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    Cited by:

    1. Karl Aiginger, 2016. "Political Rebound Effects as Stumbling Blocks for Socio-ecological Transition," WIFO Working Papers 519, WIFO.
    2. Karl Aiginger, 2013. "A New Strategy for the European Periphery," WIFO Working Papers 443, WIFO.
    3. Karl Aiginger, 2016. "New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition. Synthesis Report Part I," WWWforEurope Deliverables series 11, WWWforEurope.
    4. Karl Aiginger & Matthias Firgo, 2015. "Regional Competitiveness Under New Perspectives," WWWforEurope Policy Paper series 26, WWWforEurope.
    5. Karl Aiginger & Kurt Kratena & Margit Schratzenstaller & Teresa Weiss, 2014. "Moving towards a new growth model," WWWforEurope Deliverables series 3, WWWforEurope.
    6. Ilaria Petrarca & Roberto Ricciuti, 2015. "Relative income distribution in six European countries: market and disposable income," LIS Working papers 629, LIS Cross-National Data Center in Luxembourg.

    More about this item

    Keywords

    income distribution; wage shares; financial crisis; great recession; anti crisis strategies;

    JEL classification:

    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • G01 - Financial Economics - - General - - - Financial Crises
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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