Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution?

36 Pages Posted: 25 May 2016

See all articles by Jeffrey P. Thompson

Jeffrey P. Thompson

New England Public Policy Institute, Federal Reserve Bank of Boston; Federal Reserve Board of Governors

Date Written: 2016-05-02

Abstract

One potential consequence of rising concentration of income at the top of the distribution is increased borrowing, as less affluent households attempt to maintain standards of living with less income. This paper explores the “keeping up with the Joneses” phenomenon using data from the Survey of Consumer Finances. Specifically, it examines the responsiveness of payment-to-income ratios for different debt types at different parts of the income distribution to changes in the income thresholds at the 95th and 99th percentiles. The analysis provides some evidence indicating that household debt payments are responsive to rising top incomes. Middle and upper-middle income households take on more housing-related debt and have higher housing debt payment to income ratios in places with higher top income levels. Among households at the bottom of the income distribution there is a decline in non-mortgage borrowing and debt payments in areas with rising top-income levels, consistent with restrictions in the supply of credit. The analysis also consistently shows that 95th percentile income has a greater influence on borrowing and debt payment across in the rest of the distribution than the more affluent 99th percentile level.

Keywords: Inequality, Debt, Consumption

JEL Classification: D63, D14

Suggested Citation

Thompson, Jeffrey P., Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution? (2016-05-02). FEDS Working Paper No. 2016-046. Available at SSRN: https://ssrn.com/abstract=2783607 or http://dx.doi.org/10.17016/FEDS.2016.046

Jeffrey P. Thompson (Contact Author)

New England Public Policy Institute, Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Federal Reserve Board of Governors ( email )

Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/jeffrey-p-thompson.htm

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