Household Debt, Knowledge Capital Accumulation and Macrodynamic Performance

Laura Barbosa de Carvalho, Gilberto Lima and Gustavo Pereira Serra

No 2022_23, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: Motivated to some extent by the empirical significance of student loans in the U.S., this paper incorporates knowledge capital formation by working households financed through debt to a demand-led dynamic model of physical and knowledge capital utilization and output growth. Average labor productivity varies positively with the average knowledge capital across the labor force. A rise in labor productivity resulting from knowledge capital accumulation is fully passed on to the real wage, so that the wage share remains constant. In the unique long-run equilibrium, which is stable, an exogenous rise in the wage share raises the rates of physical capital utilization and output growth but has an ambiguous effect on the rate of employment (which also measures the rate of knowledge capital utilization). The long-run equilibrium also features the following interrelated results: the output growth rate is greater than the exogenous interest rate; the debt ratio (working households’ debt as a ratio of either the physical or the knowledge capital, or the output) is independent from the interest rate; and the allocation of a higher (lower) proportion of wage income to debt repayment (consumption) raises instead of lowers the debt ratio, which we dub the paradox of debt repayment.

Keywords: Household debt; knowledge capital; capacity utilization; employment rate; output growth (search for similar items in EconPapers)
JEL-codes: E12 E22 E24 (search for similar items in EconPapers)
Date: 2022-11-29, Revised 2022-12-05
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-knm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.repec.eae.fea.usp.br/documentos/Carvalho_Lima_Serra_23WP.pdf (application/pdf)

Related works:
Journal Article: Household debt, knowledge capital accumulation, and macrodynamic performance (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spa:wpaper:2022wpecon23

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers, Department of Economics from University of São Paulo (FEA-USP) Contact information at EDIRC.
Bibliographic data for series maintained by Pedro Garcia Duarte ( this e-mail address is bad, please contact ).