Do higher public and private debt levels benefit the wealthy?

Project overview

High debt levels and growing inequality are arguably the two most concerning political, economic and social issues in Western Europe. Despite the concomitant rise in recent decades in both debt levels (public as well as private) and wealth inequality, empirical evidence on the relationship between the two is absent in existing literature. This is striking especially since recent theoretical contributions point to a link between debt and wealth inequality.

This study will be 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’.

Impact statement

A widening gap between the rich and the poor can be a serious threat not only to economic growth but to social and political stability too. ‘Reducing inequalities within and between countries’ also features as one of the 17 United Nations Sustainable Development Goals (SDG 10) that were adopted in 2015 as a universal call to action to achieve a better and more sustainable future for all. Empirical evidence on whether public and household debt have a significant impact on top wealth shares, is inexistent in existing literature.

Using UK data on the top 1% and 10% wealth shares, we will fill this gap by letting the available data speak. This endeavour underscores the ground-breaking originality of our contribution and its importance in enabling further research.

The study will be of significance also beyond academia, with important implications for policymakers in the UK and internationally. Wealth inequality is not a phenomenon that can be left to fate or as a casual by-product of existing economic conditions, it can be reversed through policies and reforms. The same can be said of growing public debt, which is also a political choice, not an inevitability. By shedding light on the role of high debt levels on top wealth shares our findings will help policymakers better understand the trade-offs involved in attempting to reduce wealth inequality via the further accumulation of public debt.

Further important implications are likely to flow from our findings with respect to the potential influence of household debt on wealth inequality, and the effects of control variables included in our models, including house prices, rental prices, and welfare spending.

Outputs

Expected outputs from this Leverhulme funded project include an academic paper, presentation of the findings at an international conference, a Blog article, and the final project report for The Leverhulme Trust.