Income Inequality and Public Debt in OECD-Countries from a CSR Perspective

Abstract

Against the backdrop of the financial crisis which triggered the occupy movement, income inequality, and unsustainable levels of public and private debt elicit concerns regarding the health of the economic system. These issues, which are increasingly gaining public awareness, trigger over-arching questions which reach to the fundamental roots of the model of capitalism. Although capitalism can be considered to have served society well in helping to reduce global poverty and expand access to healthcare and education, the distribution of the wealth which is created by capitalism undoubtedly concurrently generates, as a spin-off, costs for society. In particular, some authors suggest that the growing gap in income inequality and public debt, which have both widened and currently reached an historic high in some countries, negatively affects the economy and thereby society. Consistent with the contemporary interest in addressing social problems and welfare in a new more inclusive approach to capitalism based on stakeholder theory, key to advancing our knowledge in this area would be the identification of the conditions under which public debt and income inequality are growing. A salient question in this debate is the (negative) role that a widening income gap plays in influencing and increasing public debt. This research gap is the missing link upon which the chapter focuses. To address these themes, the aim of the chapter is to present the theoretical and empirical arguments for causality between growing income inequality and increasing public debt within capitalist economies. However, in establishing this causal link and identifying income inequality as a contributing factor to public debt growth, the chapter does not focus on evaluating the role of public debt in society per se. Instead this theme is consigned to the scope of separate research in this field.