We use consumption and balance sheet data disaggregated between the top 5% and the bottom 95% of US households by income to show that the bottom 95% went deeply into debt to mitigate the impact of their stagnant incomes on their consumption. We use micro data to calibrate an intrinsic Keynesian growth model and show that over a range of plausible parameter values, the rise in US household income inequality increased enough between the early 1980s and 2000s to cause the entire magnitude of the Great Recession and can explain the slow and prolonged recovery.
Working Paper
Conference paper By
- Cynamon-Fazzari (pdf, 530.81 KB)
- D3 Distribution
- D31 Personal Income, Wealth, and Their Distributions
- E1 General Aggregative Models
- E12 Keynes; Keynesian; Post-Keynesian
- E01 Measurement and Data on National Income and Product Accounts and Wealth
- E2 Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- E21 Macroeconomics: Consumption; Saving; Wealth
