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Essays on financialisation, income distribution, and the business cycle

Student thesis: Doctoral ThesisDoctor of Philosophy

The aim of this doctoral research project is to examine the impact of financialisation on income inequality and on business cycles. More precisely, the present study seeks to answer three core research questions: (i) Were the business cycles of the USA and the UK driven endogenously by the private debt aggregates since the late 19th century as suggested by Hyman Minsky’s behavioural theory of economic fluctuations? (ii) Did the private debt aggregates and real share prices contribute to declines in labour share growth in France, Sweden, and the USA since the late 19th century? (iii) Which financial variables are linked to the rise of the top one per cent income share in the neoliberal era in the USA, Germany, and Sweden?

Chapter 1 provides strong econometric evidence for corporate debt-driven cycles a la Minsky in the US economy since it is found that the corporate debt ratio has been procyclical, and GDP and investment growth have been corporate debt-burdened in the full sample period. There is also weak evidence for Minskyan mortgage debt-driven cycles in the USA. Regarding the UK, there is evidence that its corporate leverage ratio has been procyclical. Chapter 2 shows that there is robust evidence that the mortgage debt accumulation has led to decreases in the labour shares of France, Sweden, and the USA since the late 19th century. For Sweden, real share prices and stock market capitalisation also exhibit negative effects on its labour share in historical context. However, the econometric findings suggest that the effects of power resources variables like union density and government spending are stronger than those of the financial variables. Chapter 3 estimates econometrically the determinants of the top one per cent income share in the neoliberal era. The results of the estimations suggest that real share prices increase the top percentiles of the USA and Sweden, dominating the other explanatory variables in terms of magnitude. In the neo-mercantilist, export-oriented economy of Germany it is the positive effect of trade globalisation that prevails over the rest explanatory variables, with finance playing a limited role. Unlike functional income inequality, the effects of financial variables prevail over those of power resources variables on the top one per cent.

The findings of this research project show that the financialisation of different sectors of the economy have different effects on the macroeconomy. Therefore, the concept of financialisation should be perceived as a dynamic, transforming process which has been historically integral to capitalism and should be studied in a comparative perspective by considering cross-country and cross-period discrepancies.
Original languageEnglish
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Award date1 Jun 2019

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