Household Borrowing and the Possibility of Consumption- Driven, Profit-Led Growth

Mark Setterfield and Yk Kim

No 39, Working Papers Series from Institute for New Economic Thinking

Abstract: We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers consumption behavior, under different assumptions about how debt is serviced. Our results demonstrate that borrowing and emulation transform the relationship between distribution and growth, giving rise to the possibility of a consumption-driven, profit-lead growth regime (Kapeller and Schutz, 2015) and what we call the paradox of inequality. A key conclusion is that the wage-or -profit led characteristics of the growth process, rather than being invariant, can be altered by social constructs such as borrowing and consumption norms that change over time.

Keywords: Borrowing; saving; emulation; debt servicing; wage-led growth; profit-led growth (search for similar items in EconPapers)
JEL-codes: E12 E44 O41 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-mac and nep-pke
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https://www.ineteconomics.org/uploads/papers/WP39-Setterfield.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: Household borrowing and the possibility of 'consumption-driven, profit-led growth' (2017)
Working Paper: Household Borrowing and the Possibility of “Consumption-Driven, Profit-Led Growth" (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:39

DOI: 10.2139/ssrn.2735613

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