The Politics of Credit-Driven Inequality

• In Event: The Politics of Overshooting in Advanced Economies

Abstract

Credit markets have become increasingly important in people’s daily lives. Households rely on credit markets to smooth income losses during economic shocks and invest in assets, such as housing and education. But the degrees to which people rely on credit markets for such purposes varies considerably across countries. In this paper, we argue that different growth models help explain why policymakers in some countries have resorted to credit markets as private alternatives to public policies, but not in others. First, we study which societal groups favor credit-financed policies and what makes it politically possible by comparing growth regimes and their regulatory and fiscal policies in the domains of housing, education, and unsecured debt. Second, we look at the distributional implications of credit-driven growth models for individuals’ life chances and economic opportunities as well as the consequences of policy overshooting. Social groups differ in their terms of access to credit and the use of specific types of loans, thus introducing new forms of inequality and “opportunity hoarding.” We illustrate the links between growth models and the politics of credit-driven inequality in a set of OECD countries, contributing to larger debates on the welfare state and inequality.

Authors

• Alexander Reisenbichler, University of Toronto

• Andreas Wiedemann, Princeton University