Austerity, Inequality, and Private Debt Overhang

Klein, Mathias; Winkler, Roland

doi:10.2139/ssrn.2906221

Cited by 6 publications

(9 citation statements)

References 44 publications

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“…How each household's welfare is affected depends on her position in the financial market. By the same token, and related to the current austerity debate, our results point towards important welfare effects of fiscal consolidations that could harm the less financially well-off part of the population, in line with the results obtained by Klein and Winkler (2017).…”

Section: Welfare Effectssupporting

confidence: 90%

“…Agnello and Sousa (2014) find that spending-driven fiscal adjustments deteriorate income distribution, whereas in Klein and Winkler (2017), austerity leads to a strong and persistent increase in income inequality only in periods of private debt overhang. DeGiorgi and Gambetti (2012) find that after a government spending shock consumption increases at the bottom of the consumption distribution but falls at the top, implying a reduction of consumption inequality.…”

mentioning

confidence: 99%

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Household's Balance Sheets and the Effect of Fiscal Policy

Andrés¹,

Boscá²,

Ferri³

et al. 2018

FEDS

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Using the Panel Survey of Income Dynamics, we identify six household types as a function of their balance sheet composition. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a DSGE model with search and matching frictions, we explore how changes in the distribution of households affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the magnitude of the fiscal multipliers, and the distributional consequences of fiscal shocks. While the output and consumption multipliers are positively correlated with the share of households with negative wealth, the size of the employment multiplier is negatively correlated. For calibrations based on the empirical household weights after the Great Recession, our model delivers jobless fiscal expansions. JEL Classification: E21, E62

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Section: Welfare Effectssupporting

confidence: 90%

mentioning

confidence: 99%

Household's Balance Sheets and the Effect of Fiscal Policy

Andrés¹,

Boscá²,

Ferri³

et al. 2018

FEDS

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“…Additionally,Klein and Winkler (2017) provide empirical evidence supporting the view that fiscal consolidations lead to a strong and persistent increase in income inequality during periods of private debt overhang. 14 For example, it is well documented that in the U.S. during the financial crisis, the households that took subprime loans were much more prone to foreclosure and bankruptcy(Li and White, 2009).…”

mentioning

confidence: 58%

“…The literature on this topic is still scarce, but not non-existent. One strand of the literature has focused on the relationship between the different forms of debt.Angeletos et al (2016) highlighted that government debt expansions significantly influence households' financial condition; investigating the impact of government debt on corporate financing decisions,Demirci et al (2017) found a negative relation between government debt and corporate leverage using data on 40 countries during the 1990-2014 period; and Uusküla (2016) examined the relationship between more than 30 macroeconomic variables and debt-to-GDP ratios for household, nonfinancial corporation and aggregate debt in a panel of European Union countries.Another strand of literature examines the effects that the generalized and necessary deleveraging process currently taking place in the private sector may have on economic activity [seeCrowe et al (2011),Ruscher and Wolff (2013),Cuerpo et al (2015) orKuvshinov et al (2016)]. Other authors (see, e. g.,Bernardini and Peersman, 2015;Klein, 2016) have shown that the effects of fiscal consolidations crucially depend on the level of private indebtedness (mostly household leveraging), whereas the state of the business cycle and the level of public debt play only a minor role in the effectiveness of fiscal policy 13 .…”

mentioning

confidence: 99%

Nonfinancial debt and economic growth in euro-area countries

Gómez‐Puig

Sosvilla‐Rivero

2018

Journal of International Financial Markets, Institutions and Mo

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Institute of Applied Economics (IREA) in Barcelona was founded in 2005, as a research institute in applied economics. Three consolidated research groups make up the institute: AQR, RISK and GiM, and a large number of members are involved in the Institute. IREA focuses on four priority lines of investigation: (i) the quantitative study of regional and urban economic activity and analysis of regional and local economic policies, (ii) study of public economic activity in markets, particularly in the fields of empirical evaluation of privatization, the regulation and competition in the markets of public services using state of industrial economy, (iii) risk analysis in finance and insurance, and (iv) the development of micro and macro econometrics applied for the analysis of economic activity, particularly for quantitative evaluation of public policies. IREA Working Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. For that reason, IREA Working Papers may not be reproduced or distributed without the written consent of the author. A revised version may be available directly from the author. Any opinions expressed here are those of the author(s) and not those of IREA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions.

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“…. 13 Additionally, Klein and Winkler (2017) provide empirical evidence supporting the view that fiscal consolidations lead to a strong and persistent increase in income inequality during periods of private debt overhang. 14 For example, it is well documented that in the U.S. during the financial crisis, the households that took subprime loans were much more prone to foreclosure and bankruptcy (Li and White, 2009).…”

mentioning

confidence: 83%