Abstract:This paper studies the effects of a change in firm leverage on wealth inequality and macroeconomic aggregates. The question is studied in a general equilibrium model with a continuum of heterogeneous agents, life-cycle, incomplete markets, and idiosyncratic and aggregate risk. The analysis focuses on the particular change in firm leverage that occurred in the U.S. during the 1980s, when firm leverage increased significantly, and subsequently has been dropping since the early 1990s. In the benchmark model, an i… Show more
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