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Growth, Distribution, Stability and Government Budget Surplus: The Extended Cambridge Equation Revisited


  • Joanílio Rodolpho Teixeira

    (University of Brasilia)


In the late 80’s Pasinetti showed that the essential feature of the Cambridge Equation is preserved in his model of growth and income distribution with balanced or unbalanced budget. He did not work out both the share of incomes and the conditions of stability and was not formally concerned with a permanent budget surplus. The present paper deals with the case of a closed economy in which, besides direct taxation, indirect taxation on government’s own expenditures is explicitly considered and the government saves permanently at a given rate. The extended Cambridge Equation and the share of profits are obtained. It is also shown that the stability result requires additional assumptions. Boundary conditions are introduced and the long-run local stability result is attained, thus corroborating the generality and robustness of Pasinetti’s original insight.

Suggested Citation

  • Joanílio Rodolpho Teixeira, 2009. "Growth, Distribution, Stability and Government Budget Surplus: The Extended Cambridge Equation Revisited," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 10(2), pages 239-251.
  • Handle: RePEc:anp:econom:v:10:y:2009:i:2:239-251

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    References listed on IDEAS

    1. Pasinetti, Luigi L, 1989. "Ricardian Debt/Taxation Equivalence in the Kaldor Theory of Profits and Income Distribution," Cambridge Journal of Economics, Oxford University Press, vol. 13(1), pages 25-36, March.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Steedman, Ian, 1972. "The State and the Outcome of the Pasinetti Process," Economic Journal, Royal Economic Society, vol. 82(328), pages 1387-1395, December.
    4. Harcourt,G. C., 1972. "Some Cambridge Controversies in the Theory of Capital," Cambridge Books, Cambridge University Press, number 9780521096720, March.
    5. J. v. Neumann, 1945. "A Model of General Economic Equilibrium," Review of Economic Studies, Oxford University Press, vol. 13(1), pages 1-9.
    6. G. C. Harcourt, 1981. "Introduction," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 3(2), pages 155-157, January.
    7. Amit Bhaduri, 2008. "On the dynamics of profit-led and wage-led growth," Cambridge Journal of Economics, Oxford University Press, vol. 32(1), pages 147-160, January.
    8. 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.
    9. Leoncini Riccardo & Montresor Sandro & Vertova Giovanna, 2006. "Dynamic Capabilities between Firm Organization and Local Development: A Critical Survey," Economia politica, Società editrice il Mulino, issue 3, pages 475-502.
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    More about this item


    Budget Surplus; Cambridge Equation; Growth; Distribution; Stability;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation


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