Economics, Econometrics and Finance
5 years ago

Public debt exacerbates wealth inequality, hitting the rich hardest.

SSRN Electronic Journal
Public Debt and Wealth Inequality
Moustafa Chatzouz

Paper Summary

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Higher public debt can worsen wealth inequality, especially in economies with low tax burdens or inefficient dynamics. A study using a simplified economic model shows that public debt can lead to more unequal distribution of wealth, particularly affecting the rich. This effect is driven by increased wage inequality and a stronger desire for the wealthy to pass on their wealth to future generations. The reduction in physical capital due to public debt plays a crucial role in shaping the impact on wealth inequality.