Source: VoxEU.org
Credits: Michael Kumhof, Romain Rancière
Dated: 2011-02-04
Inequality, leverage and crises
Of the many origins of the global crisis, one that has received comparatively little attention is income inequality. This column provides a theoretical framework for understanding the connection between inequality, leverage and financial crises. It shows how rising inequality in a climate of rising consumption can lead poorer households to increase their leverage, thereby making a crisis more likely.
