engleski

INCOME INEQUALITY AND CURRENT ACCOUNT IMBALANCES IN NEW EU MEMBERS

We show that rising income inequality linked with financial liberalization is responsible for the deterioration of the current account in new EU members. The increase in income inequality is usually associated with an economic policy of financial liberalization designed to maintain the standard of living for those suffering from real income stagnation. However, such a policy is not intended to solve the causes of inequality but generates additional stimulus for aggregate consumption through cheaper borrowing. Financial liberalization leads to increased household domestic debt contributing to a deterioration of the current account. We also show that the rise of dependency ratio as a demographic factor deteriorates the current account due to reduced savings.

current account, income inequality, financial liberalization, panel data, Hausman test, feasible generalized least squares

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