Growth Performances, Top Incomes and Consumer Credit: A Political Economy Perspective

During the last thirty years, the U.S. average economic growth has disproportionately benefited the richest percentiles of the American income distribution i.e. ‘top incomes’. Though such a phenomenon remains hard to explain from a standard political economy perspective, a recent literature emphasizes the role of consumer credit as a mean to circumvent a costly public redistribution. According to this theory, in order to lower the effects of increased income inequality, policymakers would have facilitated households’ access to consumer credit, defending, this way, households’ consumption and lifestyle. The former literature also states that financialization and more specifically easy credit policies are part of a finance-led accumulation regime which is not confined to the United States. Therefore, if this theory is correct, we expect that the aggregate consumption level to increase with the share of GDP held by top incomes. Using a panel data analysis on 21 OECD developed economies between 1980 and 2007, we show that an increase in inequality, measured as the share of GDP held by to incomes, is associated with an increase of the aggregate consumption level. Computing marginal effects, we also conclude that this increase is all the stronger that the size of the financial system, measured by both the share of jobs and the value added in the financial sector, is important.