Paper short abstract:

This paper explores the role and dynamics of stratification on inequality in high-income countries in the context of financial deepening since 1980s, focusing on changing power relationships across socio-economic groups in USA and selected European countries.

Paper long abstract:

The aim of this paper is to explore the role and dynamics of stratification on inequality in high-income countries in the context of financial deepening since 1980s. It draws a hypothesis that differences in the structure of asset and debt holdings among households have influenced the distribution of income and wealth due to the changing nature of financial sector operations, deregulation and labour market liberalisation policies. On the one hand, financial deregulation and privatisation policies have contributed to disparate income growth across the distribution, exacerbating income inequality. On the other hand, structured finance has allowed the rich to accumulate high-yielding assets while forcing the middle/low-income groups into unsustainable indebtedness, leading to massive wealth disparities. The paper examines this hypothesis by comparing the evolution of inequality measures and distributions of income, net wealth, asset and debt holdings overtime across USA and selected European Union countries. It uses data from the US Survey of Consumer Finances between 1989 and 2013, as well as the first wave of the European Household Finance and Consumption Survey. It is shown that there are clear between-group differences in the holdings of wealth, leading to persistence of inequality overtime. Moreover, geographical differences in household wealth composition reveal heterogeneity in which processes of financial development influence power relations in society. The main contribution of this paper is to develop an explicit transmission mechanism between wealth, inequality, finance, and macroeconomic structures, focusing on the power relationships across socio-economic groups and differences between the US and the European experience.