Skip to content!

May 25, 2016

Seminar

Income inequality and macroeconomic instability

Date

May 25, 2016
12:00 - 13:15

Location

Gustav-Schmoller-Raum
DIW Berlin im Quartier 110
Room 3.3.002A
Mohrenstraße 58
10117 Berlin

Speaker

Till van Treeck, Universität Duisburg-Essen

We investigate whether changes in income distribution can explain current account developments in a sample of 20 countries for the period 1972-2007. We analyze the relationship between the personal and the functional income distribution in our sample, before disentangling their effects on the household and corporate financial balances and the current account. We find that rising (top-end) personal inequality leads to a decrease of the private household financial balance and the current account, controlling for standard current account determinants. Moreover, an increase in corporate net lending or, alternatively, a fall in the wage share leads to an increase in the current account, ceteris paribus. While we remain agnostic as to the underlying theoretical explanations of our findings, they are consistent with consumption externalities on the one hand and with incomplete piercing of the corporate veil or the underconsumptionist view on the other hand. We show that changes in personal and functional income distribution have contributed considerably to the widening of current account balances, and hence to the instability of the international economic system, prior to the global financial crisis starting in 2007.

Contact

keyboard_arrow_up