Debt-driven growth? Wealth, distribution and demand in OECD countries
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The authors investigated the effects of changes in the distribution of income and in wealth on aggregate demand and its components, and found that the average demand regime is wage-led, while the effect of personal income inequality and asset prices and debt was found to be strong.Abstract:
The paper investigates the effects of changes in the distribution of income and in wealth on aggregate demand and its components. We extend the Bhaduri and Marglin (1990) model to include personal income inequality as well as asset prices and debt. This allows for an evaluation of the wage or profit-led nature of demand regimes, of the expenditure cascade argument (Frank et al. 2010) and several hypotheses regarding the effects of wealth and debt. Our estimates are based on a panel of 18 OECD countries covering the period 1980-2013. For the full panel the average demand regime is found to be wage led. We fail to find effects of personal inequality, but do find strong effects of debt and property prices which have been the major drivers of aggregate demand in the decade prior to the 2007 crisis.read more
Figures
Table 1. Different consumption theories 
Table 2. Consumption function, dependent variable: log(Ct) 
Table 6. Growth contributions 
Table 5. Marginal effect of 1 percentage point shift of WS in % of GDP on private excess demand 
Table 4. Foreign sector, dependent variables: log(Xt) and log(Mt) 
Table 3. Investment function, dependent variable: log(It)
Citations
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References
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