Abstract for: Inclusive growth and sustainable finance - a system dynamics model
In our paper we present a system dynamics model which we are developing for analyzing the relationship between economic growth and consumer debt from a financial and distribution-political perspective. The recent debt crises in the euro-zone and in the United States have naturally triggered controversial discussions about the cause and effect between the various socio-economic factors. Kumhof and Rancière presented a model that explores the "nexus between increases in the income advantage enjoyed by high income households, higher debt leverage among poor and middle income households, and vulnerability to financial crises". Bordo and Meissner, on the other hand, used "data from a panel of 14 countries for over 120 years" and found "no evidence that rising income concentration was a significant determinant of credit booms". Our preliminary results do not only support the findings of Kumhof and Rancière but may also explain why Bordo and Meissner found no evidence in their work. Understanding stock-and-flow dynamics is a key to understand and thus to prevent or overcome debt crises. Compared to austerity, achieving more income equality seems to be a better method meeting the challenge of the debt crisis. Inclusive growth can be seen as a prerequisite of sustainable finance.