Rising Top Incomes and Increased Borrowing in the Rest of the Distribution

Abstract

One potential consequence of rising top‐income concentration is borrowing by less‐affluent households attempting to maintain relative living standards. This paper evaluates the “keeping up with the Joneses” phenomenon, examining the responsiveness of payment‐to‐income ratios for different debt types across the income distribution to changes in income among affluent households. The analysis provides evidence for the responsiveness of debt to rising top incomes. Middle‐ and upper‐middle‐income households take on more housing‐related debt and have higher payments in places with higher top‐income levels. Among lower‐income households non‐mortgage borrowing and debt payments decline, consistent with restrictions in the supply of credit. (JEL D63, D14)