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First Impressions Last – Does Inequality Increase Status Consumption and Household Debt? (with Elin Molin): Recent decades have seen an increase in income inequality and household debt-to-GDP ratios in many countries, and several studies have suggested that higher income inequality spurs borrowing among nonrich households through their preference to "Keep up with the Joneses". In this paper, we show that standard Keeping up with the Joneses utility functions cannot generate this relationship unless one imposes the implausible assumption that the rich are more impatient than the nonrich. Second, we present an extended version of the Keeping up with the Joneses utility function, in which the main assumption is that status is built up over the life-cycle. We find that this model generates outcomes that are consistent with data and we discuss its implications for other models of household borrowing behavior.

Top Incomes and Consumption of the Nonrich – Is there a Swedish Trickle-Down Effect? (with Elin Molin): A recent empirical study by Bertrand and Morse (2016) suggests that the surge in US income inequality has led to higher consumption among nonrich households. Their evidence indicates that this is driven by a preference for maintaining status. Sweden is the country within the OECD where inequality has increased the most during the last decades. We use detailed Swedish micro data and replicate the study by Bertrand and Morse (2016). Moreover, we extend the analysis by exploring local inequality within age groups, to capture that households are more likely to interact with households in a similar phase of life. In both analyzes we find a positive relationship between rising top incomes and nonrich consumption. An increase of 10 percent of the 90th or 95th percentile of the income distribution is associated with an increase in the consumption-to-income ratio of 0.09-1.65 percent. However, in the replication we cannot rule out that the effect is driven by a rational expectation of future income growth or lower income volatility. In our extension, we find no evidence for the non-causal channels; permanent income, precautionary savings and wealth effects. We provide suggestive evidence that this relationship can be explained by a status-maintaining motive.

Inequality, Relative Deprivation and Financial Distress – Evidence from Swedish Register Data: Several studies have linked rising insolvency rates to increasing inequality and argued that this can be explained by individuals' desire to "Keep up with the Joneses". Using unique administrative register data on individual insolvencies in Sweden, I test whether the probability to become insolvent is related to inequality in one's reference group or to one’s income distance relative to peers. Identification relies on area fixed effects, an extensive set of background characteristics and varying the definition of relevant reference groups. The main finding is that it is not inequality per se that drives insolvency, but that higher relative deprivation increases an individual’s probability to become insolvent.

Risk-sharing and Entrepreneurship (with Matilda Kilström): In this paper, we study the role of risk-sharing in facilitating innovation. Studying entrepreneurship and innovation entails modeling an occupational choice and an effort choice. Risk-sharing may increase the number of individuals who become entrepreneurs by limiting the downside risk. The effort of entrepreneurs may, however, be hampered by high risk-sharing if this limits the returns faced by successful entrepreneurs relative to unsuccessful entrepreneurs. We construct a theoretical model where risk-sharing may be either private or provided through the welfare state by means of taxation. We show that the level of risk-sharing matters for the characteristics of entrepreneurs. Moreover, high taxes, which imply high equilibrium benefits paid out to unsuccessful entrepreneurs, encourage entrepreneurship but discourage effort.