Austerity, Inequality, and Private Debt Overhang

27 Pages Posted: 26 Jan 2017

See all articles by Mathias Klein

Mathias Klein

German Institute for Economic Research (DIW Berlin)

Roland Winkler

Dortmund University, Faculty of Business, Economics, and Social Sciences,

Date Written: January 2017

Abstract

Using panel data of 17 OECD countries for 1980-2011, we find that the distributional consequences of fiscal consolidations depend significantly on the level of private indebtedness. Austerity leads to a strong and persistent increase in income inequality during periods of private debt overhang. In contrast, there are no discernible distributional effects when private debt is low. This result is robust to alternative identifications of fiscal consolidations, to different ways of defining periods of private debt overhang, and to controlling for the state of the business cycle. We explore different channels through which our findings can be rationalized.

Keywords: austerity, fiscal policy, inequality, private debt, local projections

JEL Classification: E62, E64, D63

Suggested Citation

Klein, Mathias and Winkler, Roland, Austerity, Inequality, and Private Debt Overhang (January 2017). DIW Berlin Discussion Paper No. 1633. Available at SSRN: https://ssrn.com/abstract=2906221 or http://dx.doi.org/10.2139/ssrn.2906221

Mathias Klein (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Roland Winkler

Dortmund University, Faculty of Business, Economics, and Social Sciences, ( email )

United States

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