Discussion Paper

No. 2013-25 | March 22, 2013
Stylized Facts on the Interaction between Income Distribution and the Great Recession

Abstract

There are several narratives connecting the financial crisis—as well as the Great Depression of the 1930s—with the functional or personal income distribution and its pre-crisis movements. The paper investigates whether this claim can be supported with evidence showing that the crisis was deeper in countries in which incomes were more polarized or where wage shares were lower. Empirical evidence for 37 mainly industrialized countries does not generally support the hypothesis that either the level of or the change in distribution was closely linked to the performance of a country during the crisis. Some evidence shows a tentatively improved performance if wage shares as well as polarization decreased. Declining wage shares could have increased the resilience of firms in the crisis; the lower income differences may have bolstered consumption of domestic goods. The existence of more compelling evidence for the impact of distribution on the crisis may have been diluted by the global character of economies. Savings in one country or region can lead to low interest rates as well as financial or real investment in other regions via international capital flows which might stop abruptly in the crisis.

JEL Classification

E64 G01 J3

Cite As

Karl Aiginger and Alois Guger (2013). Stylized Facts on the Interaction between Income Distribution and the Great Recession. Economics Discussion Papers, No 2013-25, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-25

Assessment



Comments and Questions


Anonymous - Invited Reader Comment
May 08, 2013 - 11:37

Just a few comments on the paper by Aiginger and Guger. The topic is clearly interesting not least in a forward looking perspective, i.e. is higher inequality/poverty a condition for renewed growth or a consequence? or is there no simple relationship across countries/over time? Reading the paper makes me conclude ...[more]

... that no clear results regarding a relationship over time or across countries comes out of the study in spite of the obvious relevance of the question.
The paper is somewhat difficult to read, e.g. regressions are presented in an unclear way. The main – preliminary – conclusion seems to be that no fundamental stable relationship is found between the depth of the recession in individual countries and the preceding level of/change in inequality. Further, some of the significant results that do come up seems contradictory, e.g. that the recession was milder when pre-recession Ginis had declined and milder in countries with a long preceding decline in the wage share.
Overall, I would not recommend accepting the paper – this however is not a fully worked out referee report.


Anonymous - Invited Reader Comment
May 08, 2013 - 11:44

see attached file


Anonymous - Invited Reader Comment
May 15, 2013 - 08:36

see attached file


Anonymous - Referee Report 1
May 16, 2013 - 14:55

See attached file


Anonymous - Referee Report 2
May 21, 2013 - 13:15

See attached file


Karl Aiginger and Alois Guger - Reaction to comments and referee reports
May 29, 2013 - 08:59

see attached file


Anonymous - Referee Report 3
May 29, 2013 - 09:06

see attached file


Karl Aiginger and Alois Guger - Reaction to referee report 3
June 04, 2013 - 09:03

see attached file