Wealth inequality and aggregate demand

Abstract

For decades, distribution (or more precisely, the functional distribution of income) and its implications for economic growth have been central to Post-Keynesian thought, which originated with Kaldor (1955), Robinson (1956), Pasinetti (1962, as well as Steindl (1952) and Kalecki (1971). Early Post-Keynesian models in the tradition of the latter emphasize the 'wage-led' nature of growth: a rise of the profit share reduces aggregate demand and ultimately also capital accumulation (Dutt, 1984;Rowthorn, 1981;Taylor, 1985). Blecker (1989) shows that a higher profit share may have an ambiguous effect if net exports are introduced, and Bhaduri and Marglin (1990) extend these models so as to permit this ambiguity through the investment channel: if saving rises less than investment, it follows that aggregate demand and capital accumulation increase; the economy is 'profit-led'. The demand

Personal income distribution and the endogeneity of the demand regime

“…Where ω is the labour share, 1 − ω is the profit share and w i and p i are, respectively, the portion of total wage mass and total profit mass earned by individual i. These individual shares are assumed to be constant over time 7 . Individuals take their saving decisions as follows:…”

“…The personal and functional income distribution are linked following the Lerman and Yitzhaki 7 This assumption implies that the flows of savings do not sum up to wealth over time; hence, the model must be intended in a short to medium-run perspective, as for a long-run analysis the assumption that p i is constant must be released. In the long-run ṗi = S i K − gp i , where K is the stock of wealth/capital.…”

“…In the long-run ṗi = S i K − gp i , where K is the stock of wealth/capital. In other words, the wealth share is constant when the individual saves exactly the amount that corresponds to his share in the increase in total wealth; see Ederer and Rehm (2019) [7] and Palley (2017a) [17]. This issue is common to all contributions that, on one hand, have wage earners with a positive saving rate and, on the other hand, do not consider wealth distribution.…”