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Journal Articles American Economic Review Year : 2015

Inequality, Leverage, and Crises


The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession.

Dates and versions

halshs-01207208 , version 1 (30-09-2015)



Michael Kumhof, Romain Rancière, Pablo Winant. Inequality, Leverage, and Crises. American Economic Review, 2015, 105 (3), pp.1217-1245. ⟨10.1257/aer.20110683⟩. ⟨halshs-01207208⟩
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