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Demand driven growth and capital distribution in a two class model with applications to the United States

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  • Kumar, Rishabh
  • Schoder, Christian
  • Radpour, Siavash

Abstract

We present a demand driven growth and distribution model of capitalists and workers. Our model highlights dynamics of wealth distribution with class-differentiated savings which are themselves distinct from the decision to invest and accumulate capital. At the steady state, investment parameters do not influence the distribution of wealth but there exists a long run paradox of thrift effect which distributes wealth to capitalists whilst simultaneously exerting downward pressure on the level of aggregate demand. Applied to annual US data from 1950–2015 we find that the share of capitalist wealth will stabilize at approximately 68%, fairly close to the Kotlikoff–Summers dynastic capital range. The demand driven nature of our model implies a key role for the capitalist saving rate in jointly reducing macroeconomic performance and increasing wealth inequality. This may be an important issue in mature, low growth capitalist economies.

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  • Kumar, Rishabh & Schoder, Christian & Radpour, Siavash, 2018. "Demand driven growth and capital distribution in a two class model with applications to the United States," Structural Change and Economic Dynamics, Elsevier, vol. 47(C), pages 1-8.
    • Handle: RePEc:eee:streco:v:47:y:2018:i:c:p:1-8
    DOI: 10.1016/j.strueco.2018.06.003
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    3. Sasaki, Hiroaki, 2018. "Capital Accumulation and the Rate of Profit in a Two-Class Economy with Optimization Behavior," MPRA Paper 88362, University Library of Munich, Germany.

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