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

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  • Mark Setterfield
  • Yun K. Kim

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-led’’ growth regime (Kapeller and Schütz, 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

Suggested Citation

  • Mark Setterfield & Yun K. Kim, 2016. "Household Borrowing and the Possibility of ``Consumption-Driven, Profit-Led Growth’’," Working Papers 2016_01, University of Massachusetts Boston, Economics Department.
    • Handle: RePEc:mab:wpaper:2016_01
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    More about this item

    Keywords

    Borrowing; saving; emulation; debt servicing; wage-led growth; profit-led growth;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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