Income Distribution Sensitive Thirlwall's Law: a decomposition of import income elasticities and estimation for the Brazilian economy

The relationship between inequality and growth has long attracted the attention of Post-Keynesian economists. The Balance-of-Payments-Constrained Growth (BPCG) approach, however, emphasizes that in the long run it is the external constraint that ultimately pins down the growth rate. This paper contributes to that literature by developing a theoretical version of an Income Distribution Sensitive Thirlwall's Law, in which import income elasticities are decomposed by income group and the aggregate elasticity becomes a weighted average of group-specific elasticities. Changes in personal income distribution therefore modify the balance-of-payments-constrained equilibrium growth rate. Using Brazilian household microdata for 2018, we estimate income elasticities for ten income groups and convert them into import income elasticities. The results show that these elasticities vary systematically across the distribution and that more unequal income distributions are associated with a higher aggregate import income elasticity and a lower growth rate compatible with balance-of-payments equilibrium, underscoring the need to incorporate inequality directly into Thirlwall's law.