Leverage and Bargaining Power in a Kaleckian Growth Model

Shinji Teraji

Review of Political Economy, 2024, vol. 36, issue 1, 137-153

Abstract: This paper develops the theory of leverage in a Kaleckian growth model with collateralized borrowing by firms. When debts are secured by collateral, firms with higher leverage are able to borrow more. The paper focuses on what determines leverage and why it changes. Higher loan-to-collateral ratio allows higher leverage. Leverage affects the dynamics of effective demand and financial instability through the power relations between firms (borrowers) and financial capitalists (lenders). Firms and financial capitalists confront their respective claims regarding the target leverage. The model emphasizes the relative bargaining power between the two classes over the target leverage. As the firms’ bargaining power varies, collateralized loans can generate cycles under some condition.

Date: 2024
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DOI: 10.1080/09538259.2022.2030585

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