02109cas a2200277 a 4500 AALejournalIMF011610 230101c9999 xx r poo 0 0eng d 5.00 USD 9781463930578 1018-5941 BD-DhAAL BD-DhAAL Ranciere, Romain. Income Inequality and Current Account Imbalances / Romain Ranciere, Nathaniel Throckmorton, Michael Kumhof, Claire Lebarz. Washington, D.C. : International Monetary Fund, 2012. 1 online resource (44 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper studies the empirical and theoretical link between increases in income inequality and increases in current account deficits. Cross-sectional econometric evidence shows that higher top income shares, and also financial liberalization, which is a common policy response to increases in income inequality, are associated with substantially larger external deficits. To study this mechanism we develop a DSGE model that features workers whose income share declines at the expense of investors. Loans to workers from domestic and foreign investors support aggregate demand and result in current account deficits. Financial liberalization helps workers smooth consumption, but at the cost of higher household debt and larger current account deficits. In emerging markets, workers cannot borrow from investors, who instead deploy their surplus funds abroad, leading to current account surpluses instead of deficits. Mode of access: Internet Kumhof, Michael. Lebarz, Claire. Throckmorton, Nathaniel. IMF Working Papers; Working Paper ; No. 2012/008 Full text available on IMF http://elibrary.imf.org/view/journals/001/2012/008/001.2012.issue-008-en.xml IMF e-Library