Do higher public and private debt levels benefit the wealthy? An empirical analysis of top wealth shares in the UK

Abstract

Despite the concomitant rise in recent decades in both debt levels (public as well as private) and wealth inequality, empirical evidence on the relationship is absent in existing literature. This is striking especially since recent theoretical contributions point to a link between debt and wealth inequality. We contribute to the debate by investigating empirically whether higher levels of UK public and household debt increase the UK wealth concentration at the top 1% and 10% of the wealth distribution. We employ the Autoregressive Distributed Lag (ARDL) cointegration approach with UK time series data from 1970 to 2019. For robustness, a further analysis using panel data fixed effects estimation on a cross-country sample that also includes France and the USA, is undertaken. We also use bootstrapping to conservatively estimate statistical significance.
Higher levels of public and household debt are found to increase wealth concentration at the top 1% and 10%. The effect is stronger for household debt. Fixed effects estimation on a cross-country dataset supports the results for the UK. This study is the first to investigate empirically whether rising levels of UK public and household debt benefit the wealthy and thus widen the gap between the ‘haves’ and ‘have-nots’.

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ORCID for Yun Luo: orcid.org/0000-0001-8409-366X

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