Prof. George Vachadze holds Ph.D. in Mathematics from the University of Wisconsin Milwaukee (2003) and Ph.D. in Economics from the Center of Economic Research and Graduate Education of Charles University (1999). Between 2000 and 2005 he worked for National Economic Research Associates Inc., Vortex Trading LLC, Bank of Nova Scotia, Tricycle Asset Management, and Bank of Georgia. Between 2005 and 2009, he did his post-doctoral studies in international economics at the Bielefeld Graduate School of Economics and Management. Prof. Vachadze’s current research and teaching interests include Finance, growth, and development, Between and within-country income inequality, and financial globalization and endogenous fluctuations.

Title: Inequality-Led Instability

Abstract: During the last three decades, income inequality has risen considerably across many developed and developing countries. The rise has stimulated a debate among academic scholars and policymakers on whether widening income inequality may cause economic instability and how to cope with such instability. A commonly accepted policy prescription for breaking the link between income inequality and economic instability is to tighten the credit market and prevent debt accumulation to unsustainable levels, which is a pre-condition for instability. This paper offers some new insights to this debate, first, by proposing an internally consistent mechanism through which income inequality may lead to economics instability and second, by arguing that a policy proposal to tighten the credit market for breaking the link between inequality and instability may not always succeed and sometimes can even make things worst.