Income Distribution Macroeconomics

Olivier Giovannoni

Economics Working Paper Archive from Levy Economics Institute

Abstract: Recent research stresses the macroeconomic dimension of income distribution, but no theory has yet emerged. In this note, we introduce factor shares into popular growth models to gain insights into the macroeconomic effects of income distribution. The cost of modifying existing models is low compared to the benefits. We find, analytically, that (1) the multiplier is equal to the inverse of the labor share and is about 1.4; (2) income distribution matters mostly in the medium run; (3) output is wage led in the short run, i.e., as long as unemployment persists; (4) capacity expansion is profit led in the full-employment long run, but this is temporary and unstable.

Keywords: Economic Growth; Income Distribution; Multiplier; Factor Share; Output Capacity; Instability (search for similar items in EconPapers)
JEL-codes: D33 E25 (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_807

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