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Income Distribution, Consumer Debt and Keeping up with the J oneses
Author(s) -
Ryoo Soon,
Kim Yun K.
Publication year - 2014
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12052
Subject(s) - deleveraging , emulation , economics , consumer debt , household debt , debt , distribution (mathematics) , consumption (sociology) , microeconomics , monetary economics , income distribution , econometrics , macroeconomics , inequality , economic growth , sociology , mathematics , mathematical analysis , social science
We extend K aldor's theory of income distribution to include workers' debt accumulation and their motive to emulate rentiers' consumption. Our results show that (i) the interaction between income distribution and emulation can produce instability; (ii) instability is more likely when the workers' emulation motive is strong and bankers' lending decisions are highly accommodating; and (iii) a plausible assumption on the non‐linearity of emulation behavior can generate a limit cycle. Our analysis provides an alternative perspective on the increase in household indebtedness for the decades before the recent crisis and the subsequent deleveraging process.