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In today’s globalized world, consumption ripples far beyond social status and households to the larger economy. Consumption expenditure has become the driving force in most economies around the world. As the largest component of aggregate expenditure, consumption expenditure has a stronger impact on the economy than businesses and government combined. This may have prompted the recognition in recent economic literature that business cycles are mostly caused by debt-driven consumption and not by financial bubbles in the investment sector (i.e., business expenditure). This thesis will seek to demonstrate why this is indeed the case (specifically in the Canadian context). This thesis will attempt to explain why consumption ought to be considered the main determinant of economic growth. The thesis will be organized as follows: Chapter 1 describes the trends in Canada’s debt-to-GDP ratio over a twenty-five years’ period (1990-2015). In subsequent chapters, this will prepare the stage to demonstrate how household debt, private and public debt react and interact with each. Chapter 2 will demonstrate consumption’s central role in driving Canadian economic growth; as well as its influence on business cycles. Chapter 3 delves even further to demonstrate how income inequality, consumption, and economic growth could all be related. Chapter 4 considers the nature of household debt across the quintiles of the Canadian income distribution. This allows us to differentiate between debt behaviour across the quintiles and provides some insight into the role of household debt in affecting Canadian
9 consumption patterns. Chapter 5 picks up on Chapter 4 to look more deeply into income, debt, and consumption. Chapter 6 moves the analysis directly to the question of sustainable economic growth. In effect, we will examine how the nature of debt servicing, income inequality, and social emulation among different income classes in the area of consumption, affect economic sustainability. Interestingly, this produces two very distinct findings: a) the very different experiences of the U.S. and Canadian economies during and immediately after the 2007-2008 economic crisis; and b) how debt servicing and consumption behaviour play a role in fostering sustainable economic growth. In the final analysis, the thesis will end with a discussion of the conflicts that arise when considering the ‘wicked problem’ of simultaneously addressing environmental sustainability, economic sustainability, and political sustainability. Hopefully, this thesis can offer some insight into the nature of sustainability, in its broadest sense, in Canada.
10 CHAPTER 1: The Canadian Debt-GDP Nexus (1990-2015) Figure 1 compares the rate of change in debt to GDP ratio in Canada. It is important to note that the percentage change in the debt to GDP ratio had fallen by nearly two percentage points in the 1992 recession brought about by the slowdown in income and the inflationary excesses that accumulated in the last two decades.