Recent years have seen an alarming rise in public and household debt, coinciding with a widening wealth gap between the richest and everyone else. Despite this, there has been little empirical investigation into the link between rising debt and growing inequality. This study, a collaboration between three different universities, aims to answer a crucial question: does rising debt in the UK favour the wealthiest, thereby deepening inequality?
Dr Yun Luo, Lecturer in Finance at the University of Southampton, contributes significantly to this project, collaborating with lead investigator Professor Glauco De Vita from Coventry University, alongside Dr Khine S. Kyaw and Dr Kexing Li from Cardiff Metropolitan University and Coventry University respectively. The team brings a multi-institutional perspective to an issue that affects millions of people in the UK. The study uses five decades of data to explore whether rising public and household debt is enriching the wealthiest at the cost of the rest of society.
The findings are striking. The data shows that rising public debt is tied to increasing wealth concentration among the richest segments of society. Specifically, for every 1% increase in debt, the wealth share of the top 1% and top 10% grows by an additional 0.08% to 0.11%. This suggests that public debt policies, if not carefully managed, could widen the gap between the wealthy and the less fortunate.
The implications are significant, not only for economic stability but also for the social cohesion of the country. Wealth inequality can destabilise communities, create distrust, and erode social bonds. This research shows that wealth concentration is influenced by policy decisions, challenging the idea that inequality is inevitable. Thoughtful policymaking can make a difference.
By offering insights into how debt impacts wealth distribution, this study provides valuable guidance for policymakers. The research also examines household debt, housing costs, rental prices, and welfare spending to give a full picture of the factors driving inequality. Understanding these relationships is vital for creating fairer policies that do not disproportionately benefit the wealthy.
Recognising how debt influences inequality is the first step in creating policies that foster a more balanced society. The choices made today regarding public debt and household finance will shape the future, and this study aims to provide the evidence needed to make those choices wisely.
Project team:
- Principal Applicant: Professor Glauco De Vita, CBiS, Coventry University
- Co-Investigator: Dr Yun Luo, University of Southampton
- Co-investigator: Dr Khine S. Kyaw, Cardiff Metropolitan University
- Research Assistant: Dr Kexing Li, , CBiS, Coventry University
Publications
De Vita, Glauco, Luo, Yun, Kyaw, Sandy and Li, Kexing (2024) Do higher public and private debt levels benefit the wealthy? An empirical analysis of top wealth shares in the UK. Journal of Economic Studies, 51 (9), 338-357. (doi:10.1108/JES-07-2024-0458).
