Classical and Keynesian models of inequality and stagnation

Codrina Rada, Daniele Tavani, Rudiger von Arnim and Luca Zamparelli

Journal of Economic Behavior & Organization, 2023, vol. 211, issue C, 442-461

Abstract: This paper studies two formal models of long run growth with a medium-run distributive cycle, both of which feature causal links from the rise in inequality to a deterioration of long run macroeconomic performance. Both versions feature an endogenous income-capital ratio: one through the Keynesian notion of effective demand, the other building on induced bias in technical change. A key focus of the analysis is on the assumptions necessary in both frameworks to generate policy implications consistent with the observed decline of the labor share, the income-capital ratio, and labor productivity growth during the neoliberal era. Importantly, both theories: (a) provide space for mutually reinforcing pro-labor and pro-growth policies in the long run, although they differ in the mechanisms at play in these processes; (b) imply a potential tradeoff between pro-labor policies and growth on one hand, and long-run employment on the other; (c) are consistent with the evidence on the distributive cycle at business cycle frequency.

Keywords: Distributive cycle; Induced technical change; Labor share; Stagnation (search for similar items in EconPapers)
JEL-codes: E11 E12 E25 E32 O33 O41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Classical and Keynesian models of inequality and stagnation (2022)
Working Paper: Classical and Keynesian Models of Inequality and Stagnation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:211:y:2023:i:c:p:442-461

DOI: 10.1016/j.jebo.2023.05.015

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