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

36 Pages Posted: 25 May 2016  

Jeffrey P. Thompson

Federal Reserve Board; University of Massachusetts Amherst

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)

Federal Reserve Board ( email )

Washington, DC
United States

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

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