Abstract
This article presents a complete macroeconomic (SFC) model to study income and wealth distribution in an open economy. We argue that exchange rates and the stock of foreign debt play a major role in shaping inequality across and within countries. Using the ‘relative income hypothesis’, we show that debt-financed consumption of low-income households can affect both total income and the disposable income of high-income households in the medium run. In addition, while higher inequality is detrimental to the domestic economy, it can benefit trading partners.
Original language | English |
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Pages (from-to) | 722-760 |
Number of pages | 39 |
Journal | Review of Political Economy |
Volume | 36 |
Issue number | 2 |
Early online date | 29 Jun 2022 |
DOIs | |
Publication status | Published - 2 Apr 2024 |
Keywords
- Open economy
- foreign investments
- inequality
- stock-flow consistency