Inequality, Debt Servicing, and the Sustainability of Steady State Growth

29 Pages Posted: 24 Oct 2014 Last revised: 19 Nov 2014

See all articles by Mark Setterfield

Mark Setterfield

New School for Social Research

Yun K. Kim

University of Massachusetts Boston

Jeremy Rees

Trinity College (Hartford CT)

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Date Written: October 23, 2014

Abstract

We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance. A standard Kaleckian growth model is modiifed to incorporate working households who borrow to finance consumption that is determined, in part, by the desire to emulate the consumption patterns of more affluent households. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of income inequality. When compared to previous contributions to the literature, our results show that the way in which debtor households service their debt has both quantitative and qualitative effects on the economy's macrodynamics.

Keywords: Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth

JEL Classification: E12, E44, O41

Suggested Citation

Setterfield, Mark and Kim, Yun K. and Rees, Jeremy, Inequality, Debt Servicing, and the Sustainability of Steady State Growth (October 23, 2014). Available at SSRN: https://ssrn.com/abstract=2514431 or http://dx.doi.org/10.2139/ssrn.2514431

Mark Setterfield (Contact Author)

New School for Social Research ( email )

6 East 16th Street
New York, NY 10003
United States

Yun K. Kim

University of Massachusetts Boston ( email )

100 William T Morrissey Blvd
Boston, MA 02125
United States

Jeremy Rees

Trinity College (Hartford CT) ( email )

300 Summit Street
Hartford, CT 06106
United States

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