Austerity, inequality, and private debt overhang

Using panel data of 17 OECD countries for 19802011, 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 and the level of government debt. We explore different channels through which our findings can be rationalized.

Publication year:2019

Keywords:A1 Journal article

BOF-keylabel:yes

BOF-publication weight:1

CSS-citation score:1

Authors:International

Authors from:Higher Education

Accessibility:Open