Rethinking inequality in the 21st century – inequality and household balance sheet composition in financialized economies

Szymborska, Hanna Karolina (2020) Rethinking inequality in the 21st century – inequality and household balance sheet composition in financialized economies. Working Paper 3. Centre for Applied Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University. (Unpublished)

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Abstract

This paper analyses the impact of household wealth heterogeneity on inequality and macroeconomic stability in financialized economies. Based on the case of the USA since the 1980s it argues that transformation of financial sector operations has generated inequality by influencing gains from wealth ownership and leverage levels across the income distribution. Securitization and the subprime lending expansion have led to the emergence of a new class of leveraged homeowners, experiencing large increases in wealth prior to the Great Recession, followed by substantial losses after the crisis. Simultaneously, capitalists have diversified their asset portfolios while earning the highest and fastest growing wages in the economy when employed as financial sector executives. In this light, the paper proposes a new conceptualization of households in macroeconomic models, defined by balance sheet composition rather than income sources alone. To inform this taxonomy, inequality and leverage indicators are simulated in a stock-flow consistent model calibrated to US data with three classes of households distinguished by their wealth composition, and a securitized financial sector. The proposed framework is found to produce more empirically accurate levels of income inequality and greater macroeconomic instability than the two-class division, and establishes an equalizing effect of housing for wealth distribution.

Item Type: Monograph (Working Paper)
Identification Number: 3
Date: 21 September 2020
Uncontrolled Keywords: Household wealth, Inequality, Macroeconomic modelling, Financial system, USA
Subjects: L100 Economics
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Faculty of Business, Law and Social Sciences > Birmingham City Business School > Centre for Applied Finance and Economics
Depositing User: Hanna Szymborska
Date Deposited: 21 Sep 2020 12:41
Last Modified: 21 Sep 2020 12:41
URI: http://www.open-access.bcu.ac.uk/id/eprint/9908

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