Income Inequality, Household Debt, and Current Account Imbalances

Transcription

1 Income Inequality, Household Debt, and Current Account Imbalances Till van Treeck University of Duisburg-Essen (joint work with Christian A. Belabed, Jan Behringer, Thomas Theobald) INET 6th Annual Conference New Economic Thinking: Liberté, Egalité, Fragilité Paris, 9 April 2015

2 Our INET project Contributes to growing literature on inequality as a cause of the global financial crisis starting in 2007/8 Looks at potential links between income distribution and current account imbalances Macro panel analysis for 20 countries (Behringer/van Treeck, 2013) Three-country SFC model calibrated for U.S., Germany, China (Belabed/Theobald/van Treeck, 2013) Two-country DSGE model calibrated for U.K., Germany (Grüning/Theobald/van Treeck, 2015) Attempts to combine two strands of the literature Post-Keynesian literature on wage-led growth (functional income distribution) Relative income hypothesis, trickle-down consumption (personal income distribution)

3 Outline 1. Inequality and imbalances in the United States 2. Inequality and imbalances in Germany 3. Inequality and imbalances: a macro panel analysis 4. Concluding remarks

4 Outline 1. Inequality and imbalances in the United States 2. Inequality and imbalances in Germany 3. Inequality and imbalances: a macro panel analysis 4. Concluding remarks

5 USA post-1980: Rising top-end household income inequality Source: WTID.

6 USA post-1980: Debt-driven consumption and crisis Source: NIPA, FoF, own calculations (as % of household disposable income)

7 U.S. sectoral financial balances, as percentage of GDP Source: NIPA, own calculations

8 Source: Saez and Zucman (2014)

9 Source: Kumhof et al. (2013)

10 USA post 1980: Rather little change in functional income distribution Source: NIPA, own calculations (as % of GDP)

11 Some implications Models focusing exclusively on the functional income distribution may miss an important part of the inequality-crisis nexus for the U.S. Mainstream theories of consumption are unable to explain the decline in the household saving rate and the rise in household debt in the U.S. The current renaissance of the long-neglected relative income hypothesis of consumption is highly warranted

12 Outline 1. Inequality and imbalances in the United States 2. Inequality and imbalances in Germany 3. Inequality and imbalances: a macro panel analysis 4. Concluding remarks

13 According to the Gini coefficient of household disposable income, inequality has increased to a similar degree in the U.S. and Germany

14 According to Piketty, Germany is an L-shape country in terms of top household income shares (whereas the United States is a U-shape country) Source: WTID, own calculations

15 A conceptual problem with Piketty s method Trends in top household income shares are not directly comparable across countries because they ignore trends within the corporate sector (which is essentially owned by rich households) In Germany, the corporate sector has been a persistent net saver since 2002 Because retained corporate profits are not counted as household income, top household income shares à la Piketty underestimate the rise of top-end inequality in Germany

16 Germany post-2000: The rise of capital and corporate income Source: Behringer/Theobald/van Treeck (2014)

17 Source: Behringer/Theobald/van Treeck (2014)

18 Germany post-2000: The macroeconomic implications of the corporate veil The corporate veil hides the rise in income inequality between households restraints domestic demand (rising retained profits are not spent), as predicted by models of wage-led growth limits the pressure put on the middle class to engage in debt-financed consumption (which is also restricted by more conservative banking practices and more extensive provision of public goods, compared to the U.S.; see Belabed et al., 2013)

19 Germany post-2000: Weak domestic demand and current account surplus Source: Behringer/Theobald/van Treeck (2014)

20 Outline 1. Inequality and imbalances in the United States 2. Inequality and imbalances in Germany 3. Inequality and imbalances: a macro panel analysis 4. Concluding remarks

21 Change in top income share versus change in corporate financial balance, early 1980s-mid-2000s

22 Change in top income share versus change in wage share, early 1980s-mid-2000s

23 An increase in top income shares is linked to a decrease in the current account, while an increase in corporate net saving (or a decrease in the wage share) is linked to an increase in the current account (see Behringer/van Treeck 2013)

24 Outline 1. Inequality and imbalances in the United States 2. Inequality and imbalances in Germany 3. Inequality and imbalances: a macro panel analysis 4. Concluding remarks

25 Some conclusions Inequality was an important cause of macroeconomic imbalances leading to the global financial crisis (overindebted households vs. overindebted trading partners) For demand growth to recover in a sustainable way, a more equal distribution of income is required in both CA deficit and surplus countries Macroeconomic models should include both the functional and the personal distribution of income

26 Thank you