Working Paper: CEPR ID: DP15647
Authors: Sergio De Ferrra; Federica Romei; Kurt Mitman
Abstract: Capital flows from equal to unequal countries. We document this empirical regularity in a large sample of advanced economies. The capital flows are largely driven by private savings. We propose a theory that can rationalize these findings: more unequal countries endogenously develop deeper financial markets. Households in unequal counties, in turn, borrow more, driving the observed direction of capital flows.
Keywords: inequality; current account; capital flows
JEL Codes: F32; F41; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income Inequality (D31) | Current Account Deficits (F32) |
| Income Inequality (D31) | Private Savings (D14) |
| Private Savings (D14) | Current Account Deficits (F32) |
| Income Inequality (D31) | Capital Flows (F32) |
| Current Account Balance (F32) | Capital Flows (F32) |