Income distribution and current account: A sectoral perspective

Jan Behringer · Till van Treeck

19 citations0/0 files storedRePEc: Research Papers in Economics

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Economic Theory and Policy Global Financial Crisis and Policies Income, Poverty, and Inequality

Abstract

We analyse the link between income distribution and the current account for the period 1972-2007. We find that rising (top-end) personal inequality leads to a decrease of the current account, ceteris paribus. This result is consistent with consumption externalities resulting from upward-looking comparisons. Moreover, an increase in the corporate financial balance or a decrease in the labour income share leads to an increase in the current account. This finding is consistent with the view that consumers do not fully ‘pierce the corporate veil’. Changes in personal and functional income distribution have contributed considerably to the widening of current account balances.

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References

1936The General Theory of Employment, Interest and Money.1995Estimating long-run relationships from dynamic heterogeneous panels 1994Distributive Politics and Economic Growth 2015The Price of Inequality: How Today's Divided Society Endangers Our Future 2007The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970–2004 2011Top Incomes in the Long Run of History 1960A Theory of the Consumption Function 2009The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis *

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2018Macroeconomic effects of personal and functional income inequality: Theory and empirical evidence for the US and Germany 2015Inequality, the crisis and stagnation

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