Rising inequality and stagnation in the US economy

US household demand is well below its trend from prior to the Great Recession. We link weak demand to rising income inequality. The demand problem did not arise contemporaneously with higher income inequality because the bottom 95 percent of the income distribution went deeply into debt to maintain...

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Veröffentlicht in:European journal of economics and economic policies 2015-09, Vol.12 (2), p.170-182
Hauptverfasser: Cynamon, Barry Z, Fazzari, Steven M
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container_title European journal of economics and economic policies
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creator Cynamon, Barry Z
Fazzari, Steven M
description US household demand is well below its trend from prior to the Great Recession. We link weak demand to rising income inequality. The demand problem did not arise contemporaneously with higher income inequality because the bottom 95 percent of the income distribution went deeply into debt to maintain consumption growth despite their stagnant income growth. But we argue that the demand impact of greater inequality did appear in the aftermath of the recession. A calibrated Keynesian growth model shows that the lower income share of the bottom 95 percent can explain the deviation of the US economy from its pre-recession trend.
doi_str_mv 10.4337/ejeep.2015.02.03
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ispartof European journal of economics and economic policies, 2015-09, Vol.12 (2), p.170-182
issn 2052-7772
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2052-7772
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source Alma/SFX Local Collection
subjects aggregate demand
consumption
Economic growth
Economic models
household
Income inequality
national income and product accounts
Recessions
saving
title Rising inequality and stagnation in the US economy
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