Demand Drives Growth all the Way

Lance Taylor, Duncan Foley and Armon Rezai

No 20, Ecological Economic Papers from WU Vienna University of Economics and Business

Abstract: A demand-driven alternative to the conventional Solow-Swan growth model is analyzed. Its medium run is built around Marx-Goodwin cycles of demand and distribution. Long-run income and wealth distributions follow rules of accumulation stated by Pasinetti in combination with a technical progress function for labor productivity growth incorporating a Kaldor effect and induced innovation. An explicit steady state solution is presented along with analysis of dynamics. When wage income of capitalist households is introduced, the Samuelson-Modigliani steady state "dual" to Pasinetti's cannot be stable. Numerical simulation loosely based on US data suggests that the long-run growth rate is around two percent per year and that the capitalist share of wealth may rise from about forty to seventy percent due to positive medium-term feedback of higher wealth inequality into its own growth.

Date: 2018-03
New Economics Papers: this item is included in nep-gro, nep-mac and nep-pke
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Related works:
Working Paper: Demand Drives Growth all the Way (2017)
Working Paper: Demand Drives Growth All The Way (2016)
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