Journal Article

Income distribution and current account imbalances

Christian A Belabed, Thomas Theobald and Till van Treeck

in Cambridge Journal of Economics

Volume 42, issue 1, pages 47-94
Published in print January 2018 | ISSN: 0309-166X
Published online July 2017 | e-ISSN: 1464-3545 | DOI: https://dx.doi.org/10.1093/cje/bew052
Income distribution and current account imbalances

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  • Microeconomics
  • General Aggregative Models
  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment
  • International Finance
  • Macroeconomic Aspects of International Trade and Finance

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Abstract

We develop a three-country, stock-flow-consistent macroeconomic model to study the effects of changes in both personal and functional income distribution on national current account balances. The model is calibrated for the USA, Germany and China. Simulations suggest that a substantial part of the increase in household debt and the decrease in the current account in the USA since the early 1980s can be explained by the interplay of rising (top-end) household income inequality and institutions. On the other hand, the weak domestic demand and increasing current account balances of Germany and China since the mid-1990s are strongly related to shifts in the functional income distribution at the expense of the household sector.

Keywords: Income distribution; Current account imbalances; Relative income hypothesis; Household debt; Stock-flow consistency

Journal Article.  19636 words.  Illustrated.

Subjects: Microeconomics ; General Aggregative Models ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment ; International Finance ; Macroeconomic Aspects of International Trade and Finance

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