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

Szymborska, Hanna Karolina (2021) Rethinking inequality in the 21st century – inequality and household balance sheet composition in financialized economies. Journal of Post Keynesian Economics. ISSN 0160-3477

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Abstract

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:	Article
Identification Number:	10.1080/01603477.2021.1969951
Dates:	Date Event 8 June 2021 Accepted 8 September 2021 Published Online
Uncontrolled Keywords:	Household wealth, Inequality, Macroeconomic modelling, Financial system, USA
Subjects:	CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics
Divisions:	Faculty of Business, Law and Social Sciences > College of Accountancy, Finance and Economics > Centre for Accountancy Finance and Economics Faculty of Business, Law and Social Sciences > College of Accountancy, Finance and Economics Faculty of Business, Law and Social Sciences > College of Business, Digital Transformation & Entrepreneurship
Depositing User:	Hanna Szymborska
Date Deposited:	21 Jun 2021 10:30
Last Modified:	20 Jun 2024 12:05
URI:	https://www.open-access.bcu.ac.uk/id/eprint/11801

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