Essays on Inequality, Insolvency and Innovation

Abstract: First Impressions Last – Does Inequality Increase Status Consumption and Household Debt? (with Elin Molin): Recent decades have seen an increase in income inequality and household debt-to-GDP ratios in many countries, and several studies have suggested that higher income inequality spurs borrowing among nonrich households through their preference to "Keep up with the Joneses". In this paper, we show that standard Keeping up with the Joneses utility functions cannot generate this relationship unless one imposes the implausible assumption that the rich are more impatient than the nonrich. Second, we present an extended version of the Keeping up with the Joneses utility function, in which the main assumption is that status is built up over the life-cycle. We find that this model generates outcomes that are consistent with data and we discuss its implications for other models of household borrowing behavior.