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Capital Accumulation and the Rate of Profit in a Two-Class Economy with Optimization Behavior

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  • Sasaki, Hiroaki

Abstract

By building a growth model with two classes, workers and capitalists, this study investigates the existence and the stability of the long-run equilibrium along the lines of Pasinetti (1962) and Samuelson and Modigliani (1966). Unlike preceding studies in which the propensity to save of each class is exogenously given, this study assumes that workers solve a two-period overlapping generations model while capitalists solve an infinite-horizon dynamic optimization model. Depending on the combinations of both classes' time preference rate, the parameter of the production function, and the population growth rate, we obtain two kinds of long-run equilibria, the Pasinetti equilibrium and dual equilibrium \`a la Samuelson-Modigliani. We show that under realistic values of the parameters, the economy is likely to converge to the Pasinetti equilibrium.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:88362
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    References listed on IDEAS

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    1. Joao Ricardo Faria & Ricardo Azevedo Araujo, 2004. "An Intertemporal Pasinettian Model with Government Sector," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(3), pages 257-268, December.
    2. João Ricardo Faria & Joanílio Rodolpho Teixeira, 1999. "Growth and stability in a model with Pasinettian saving behaviour and neoclassical technology," Manchester School, University of Manchester, vol. 67(1), pages 111-121, January.
    3. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
    4. Bohm, Volker & Kaas, Leo, 2000. "Differential savings, factor shares, and endogenous growth cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 965-980, June.
    5. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151.
    6. Luca Zamparelli, 2017. "Wealth Distribution, Elasticity of Substitution and Piketty: An ‘Anti-Dual’ Pasinetti Economy," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 927-946, November.
    7. Luigi L. Pasinetti, 1962. "Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 267-279.
    8. 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.
    9. Y. Furuno, 1970. "Convergence Time in the Samuelson-Modigliani Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 37(2), pages 221-232.
    10. Darity, William A, Jr, 1981. "The Simple Analytics of Neo-Ricardian Growth and Distribution," American Economic Review, American Economic Association, vol. 71(5), pages 978-993, December.
    11. Paul A. Samuelson & Franco Modigliani, 1966. "The Pasinetti Paradox in Neoclassical and More General Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 33(4), pages 269-301.
    12. Thomas R. Michl & Duncan K. Foley, 2004. "Social security in a Classical growth model," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 28(1), pages 1-20, January.
    13. Faria, Joao Ricardo & Teixeira, Joanilio Rodolpho, 1999. "Growth and Stability in a Model with Pasinettian Saving Behaviour and Neoclassical Technology," Manchester School, University of Manchester, vol. 67(1), pages 111-121, January.
    14. Faria, Joao Ricardo, 2000. "A two-class fiscal and monetary growth model," Structural Change and Economic Dynamics, Elsevier, vol. 11(3), pages 355-364, September.
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    Cited by:

    1. Sasaki, Hiroaki, 2021. "Automation Technology, Economic Growth, and Income Distribution in an Economy with Dynasties and Overlapping Generations," MPRA Paper 105446, University Library of Munich, Germany.
    2. Kazuhiro Kurose, 2022. "A two-class economy from the multi-sectoral perspective: the controversy between Pasinetti and Meade–Hahn–Samuelson–Modigliani revisited," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 239-270, April.

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    More about this item

    Keywords

    workers and capitalists; intertemporal optimization; Pasinetti equilibrium; dual equilibrium;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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