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Inequality, the Crisis and After

Author

Listed:
  • Jean-Paul Fitoussi

    (OFCE, Paris)

  • Francesco Saraceno

    (OFCE, Paris)

Abstract

Although the crisis emerged in the financial sector, its roots are deeper and lie in a structural change in income distribution that begun in the 1980s. The increase of inequality depressed aggregate demand by the middle-class, while the search for high returns by the wealthiest led to the emergence of bubbles. Net wealth became overvalued, and asset prices gave the false impression that high levels of debt were sustainable. We further argue that the trend of increasing inequality interacted differently with policies and institutions, to yield radically different outcomes in the US and in European countries before the onset of the crisis.

Suggested Citation

  • Jean-Paul Fitoussi & Francesco Saraceno, 2011. "Inequality, the Crisis and After," Rivista di Politica Economica, SIPI Spa, issue 1, pages 9-27, January-M.
    • Handle: RePEc:rpo:ripoec:y:2011:i:1:p:9-27
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    Keywords

    financial crisis; income inequality; US and EU comparison; debt; aggregate demand;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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