No one is alone: Strategic complementarities, capacity utilization, growth, and distribution

Luke Petach and Daniele Tavani

Structural Change and Economic Dynamics, 2019, vol. 50, issue C, 203-215

Abstract: A longstanding criticism to Keynesian and Kaleckian growth theories is the question: why would firms operating with underutilized capacity accumulate capital stock? Our answer hinges on firms’ utilization choices depending on their beliefs about the level of demand, as captured by aggregate utilization. In a simple growth and distribution model, we show that: (i) desired utilization is endogenous to beliefs; and (ii) the equilibrium utilization rate is inefficiently low. We then turn to different model closures to draw policy implications: (iii) with a Classical closure, equilibrium growth and profitability are both strictly below their efficient values; (iv) with a Kaldor/Pasinetti closure, the equilibrium labor share is strictly below the value corresponding to efficient utilization. Spending policies can be used to achieve the efficient outcome. Finally, we use state-by-sector BEA data to validate our hypothesis: estimation results provide strong and robust support for our model in the US.

Keywords: Capacity utilization; Factor shares; Growth; Strategic complementarities (search for similar items in EconPapers)
JEL-codes: B50 E12 E22 E25 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: No one is alone: Strategic complementarities, capacity utilization, growth, and distribution (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:50:y:2019:i:c:p:203-215

DOI: 10.1016/j.strueco.2019.07.001

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