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Household borrowing and the possibility of 'consumption-driven, profit-led growth'

Mark Setterfield and Yk Kim

Review of Keynesian Economics, 2017, vol. 5, issue 1, 43-60

Abstract: We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers' consumption behavior, under different assumptions about how debt is serviced. Our results demonstrate that borrowing and emulation transform the relationship between distribution and growth, giving rise to the possibility of a 'consumption-driven, profit-led' growth regime (Kapeller and Schütz 2015) and what we call the 'paradox of inequality.' A key conclusion is that the wage- or profit-led characteristics of the growth process, rather than being invariant, can be altered by social constructs such as borrowing and consumption norms that change over time.

Keywords: borrowing; saving; emulation; debt servicing; wage-led growth; profit-led growth (search for similar items in EconPapers)
JEL-codes: E12 E44 O41 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Household Borrowing and the Possibility of “Consumption-Driven, Profit-Led Growth" (2016) Downloads
Working Paper: Household Borrowing and the Possibility of Consumption- Driven, Profit-Led Growth (2016) Downloads
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