Income Inequality and Current Account Imbalances

  • Ranciere R
  • Throckmorton N
  • Kumhof M
 et al. 
  • 52

    Readers

    Mendeley users who have this article in their library.
  • N/A

    Citations

    Citations of this article.

Abstract

This paper studies the empirical and theoretical link between increases in income inequality and increases in current account deficits. Cross-sectional econometric evidence shows that higher top income shares, and also financial liberalization, which is a common policy response to increases in income inequality, are associated with substantially larger external deficits. To study this mechanism we develop a DSGE model that features workers whose income share declines at the expense of investors. Loans to workers from domestic and foreign investors support aggregate demand and result in current account deficits. Financial liberalization helps workers smooth consumption, but at the cost of higher household debt and larger current account deficits. In emerging markets, workers cannot borrow from investors, who instead deploy their surplus funds abroad, leading to current account surpluses instead of deficits.

Author-supplied keywords

  • authors
  • claire
  • com
  • current account imbalances
  • edu
  • email addresses
  • financial liberalization
  • gmail
  • imf
  • income inequality
  • indiana
  • lebarz
  • mkumhof
  • nathrock
  • org
  • richtera
  • romainranciere

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Authors

  • Romain Ranciere

  • Nathaniel A. Throckmorton

  • Michael Kumhof

  • Claire Lebarz

  • Alexander W. Richter

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free