A Vicious Circle: The Interaction between Income Distribution and Household Indebtedness in the Neoliberal Era

Abstract

In the neoliberal era, financialization of the economies is associated both with large-scale speculative movements in the financial sector and over-indebtedness. The fact that there were significant increases in household indebtedness in the United States before the 2008/09 global financial crisis made the growing indebtedness an outstanding issue that should be examined in terms of its supply and demand-side causes and its distributive consequences. Increasing inequality in income distribution has been an important consideration associated with the increase in household indebtedness. In a sense, the borrowing opportunities enable working households to maintain their consumption and living standards in the short term despite the stagnation in wages and thus increasing inequality, but it does not prevent them from undergoing an unsustainable debt burden. This debt burden creates a feedback effect by deepening the existing inequality. The purpose of this study is to reveal the macro and micro dynamics associated with neoliberal policies that create the supposed relationship between inequality and household indebtedness and to try to interpret the increasing household indebtedness and income inequality in Turkey in the 2000s within this framework.