The Paradox of Thrift in the Two-Sector Kaleckian Growth Model

Lucrezia Fanti and Luca Zamparelli

No 6/20, Working Papers from Sapienza University of Rome, DISS

Abstract: We analyze the paradox of thrift in the two-sector Kaleckian growth model. We consider an economy with one consumption and one investment good, and differential sectoral mark-ups. We show that when the investment function depends on aggregate capacity utilization and on the aggregate profit share (the Bhaduri-Marglin investment function) the paradox of thrift in its growth version may fail if mark-ups are higher in the investment good sector. In this case, the reduction in the saving rate produces a reallocation of economic activity towards the investment good sector; the aggregate profit share rises and its positive effect on investment may offset the reduction in average capacity utilization if investment is relatively more sensitive to profitability than to the level of activity.

Keywords: two-sector growth model; paradox of thrift; Bhaduri-Marglin investment function (search for similar items in EconPapers)
JEL-codes: D33 E11 O14 (search for similar items in EconPapers)
Date: 2020-03
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Related works:
Journal Article: The paradox of thrift in a two‐sector Kaleckian growth model (2021)
Working Paper: The Paradox of Thrift in the Two-Sector Kaleckian Growth Model (2020)
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