Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016

Arbeitspapier

This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level dataset that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, middle-class families borrowed against the sizable housing wealth gains from rising home prices. Home equity borrowing accounts for about half of the increase in U.S. household debt between the 1970s and 2007. The resulting debt increase made balance sheets more sensitive to income and house price fluctuations and turned the American middle class into the epicenter of growing financial fragility.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8273

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; Financial Markets and the Macroeconomy ; Household Saving; Personal Finance ; Personal Income, Wealth, and Their Distributions
• Subject: household debt ; inequality ; household portfolios ; financial fragility

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bartscher, Alina K. ; Kuhn, Moritz ; Schularick, Moritz ; Steins, Ulrike I.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/217024
• Last update: 10.03.2025, 11:43 AM CET