Working paper 3/2016

Financialisation, Debt and Inequality: Export-led Mercantilist and Debt-led Private Demand Boom Economies in a Stock-flow consistent Model

Daniel Detzer

December, 2016

Abstract: In the era of financialisation, increasing income inequality could be observed in most developed and many developing countries. Despite these similar developments in inequality, the growth performance and drivers for growth differed markedly among countries, allowing clusters of different growth regimes to be identified. Among them are two extreme types: the debt-led private-demand boom and the export-led mercantilist economies. Whereas the former rely mainly on credit-financed household consumption in order to compensate for the potential lack of demand (associated with the depressing effect of financialisation), the latter rely on net exports as the main driver of aggregate demand. Using a stock-flow consistent model it will be demonstrated how increasing inequality, depending on a countries institutional structure and regulatory framework, affects growth differently, explaining the occurrence of both regime types.

JEL codes: E02 E12 E21 E25 E44 E65 F40 F41 F43

Keywords: international imbalances, finance-dominate capitalism, financialisation, debt, emulation, stock-flow consistent model

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