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The Paradox of Thrift in the Two-Sector Kaleckian Growth Model

Author

Listed:
  • Lucrezia Fanti

    (National Institute for Public Policy Analysis (INAPP))

  • Luca Zamparelli

    (Department of Social Sciences and Economics, Sapienza University of Rome)

Abstract

We analyze the paradox of thrift in the two-sector Kaleckian growth model. We consider an economy with one consumption and one investment good, and differential sectoral mark-ups. We show that when the investment function depends on aggregate capacity utilization and on the aggregate profit share (the Bhaduri-Marglin investment function) the paradox of thrift in its growth version may fail if mark-ups are higher in the investment good sector. In this case, the reduction in the saving rate produces a reallocation of economic activity towards the investment good sector; the aggregate profit share rises and its positive effect on investment may offset the reduction in average capacity utilization if investment is relatively more sensitive to profitability than to the level of activity.

Suggested Citation

  • Lucrezia Fanti & Luca Zamparelli, 2020. "The Paradox of Thrift in the Two-Sector Kaleckian Growth Model," Working Papers 6/20, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:6/20
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    References listed on IDEAS

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    14. Elton Beqiraj & Lucrezia Fanti & Luca Zamparelli, 2019. "Sectoral Composition of Output and the Wage Share: a Two-Sector Kaleckian Model," Working Papers 3/19, Sapienza University of Rome, DISS.
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    Cited by:

    1. Nishi, Hiroshi, 2022. "Income distribution, technical change, and economic growth: A two-sector Kalecki–Kaldor approach," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 418-432.

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    More about this item

    Keywords

    two-sector growth model; paradox of thrift; Bhaduri-Marglin investment function;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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