Debt Servicing, Aggregate Consumption, and Growth

Mark Setterfield and Yk Kim

No 2014_10, Working Papers from University of Massachusetts Boston, Economics Department

Abstract: We develop a neo-Kaleckian growth model that emphasizes the importance of consumption behavior. In our model, workers first make consumption decisions based on their gross income, and then treat debt servicing commitments as a substitute for saving. Workers' borrowing is induced by their desire to keep up with the consumption standard set by rentiers' consumption, reflecting an aspect of the relative income hypothesis. As a result of this consumption and debt servicing behavior, consumer debt accumulation and income distribution have effects on aggregate demand, profitability, and economic growth that differ from those found in existing models. We also investigate the financial sustainability of the Golden Age and Neoliberal growth regimes within our framework. It is shown that distributional changes between the Golden Age and the Neoliberal regimes, together with corresponding changes in consumption emulation behavior via expenditure cascades, suffice to make the Neoliberal growth regime unsustainabble.

Keywords: Consumer debt; emulation; income distribution; Golden Age regime; Neoliberal regime; expenditure cascades; growth (search for similar items in EconPapers)
JEL-codes: E12 E44 O41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-11
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Debt servicing, aggregate consumption, and growth (2016)
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