financial globalization inequality and the raising of public debt

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1、WORKINGPAPERNO.12-6FINANCIALGLOBALIZATION,INEQUALITY,ANDTHERAISINGOFPUBLICDEBTMarinaAzzimontiFederalReserveBankofPhiladelphiaEvadeFranciscoTowsonUniversityVincenzoQuadriniUniversityofSouthernCaliforniaFebruary17,2012FinancialGlobalization,Inequality,and

2、theRaisingofPublicDebtMarinaAzzimontiEvadeFranciscoFederalReserveBankofPhiladelphiaTowsonUniversityVincenzoQuadriniUniversityofSouthernCaliforniaFebruary17,2012AbstractDuringthelastthreedecades,thestockofgovernmentdebthasincreasedinmostdevelopedcountri

3、es.Duringthesameperiod,wealsoobserveasignicantliberalizationofinternationalnancialmarketsandanincreaseinincomeinequalityinseveralindustrializedcountries.Inthispaperweproposeamulticountrypoliticaleconomymodelwithincompletemarketsandendogenousgovernment

4、borrowingandshowthatgovernmentschoosehigherlevelsofpublicdebtwhennancialmarketsbecomeinternationallyintegratedandinequalityincreases.WealsoconductanempiricalanalysisusingOECDdataandndthatthepredictionsofthetheoreticalmodelaresupportedbytheempiricalres

5、ults.WewouldliketothankPierreYaredandManuelAmadorforinsightfuldiscussionsofthepaperandseminarparticipantsatBocconiUniversity,theEuropeanUniversityInstitute,theEIEF,theFederalReserveBoard,NBERIFMmeeting,NBERSummerInstitute,thePhiladelphiaFed,SEDmeeting,

6、theSt.LouisFed,UCSanDiego,UCSantaBarbara,UniversityofBern,UniversityofMaryland,UniversityofSouthernCal-ifornia,UniversityofHouston,RiceUniversity,RutgersUniversity,TowsonUniversity,andWharton.Theviewsexpressedinthispaperarethoseoftheauthorsanddonotnec-e

7、ssarilyre ectthoseoftheFederalReserveBankofPhiladelphiaortheFederalReserveSystem.Thispaperisavailablefreeofchargeatwww.philadelphiafed.org/research-and-data/publications/working-papers.1IntroductionDuringthelastthreedecades,wehaveobservedanincreaseinthe

8、stockofpublicdebtinmostdevelopedcountries.AsshowninthetoppanelofFigure1,thestockofpublicdebtinOECDcountrieshasincreasedfromaround30percentofGDPintheearly1980stoabout50percentin2005.SimilarincreasesareobservedintheUnitedStatesandE