IDEAS home Printed from https://ideas.repec.org/p/spa/wpaper/2014wpecon23.html
   My bibliography  Save this paper

Personal Income Inequality and Aggregate Demand

Author

Listed:
  • Laura Carvalho

    ()

  • Armon Rezai

    ()

Abstract

This paper presents a theoretical and empirical investigation of how changes in the size distribution of income can affect aggregate demand and the demand regime of an economy. After presenting empirical evidence for the US economy that the propensity to save increases significantly from the bottom to the top quintile of wage earners, we demonstrate that more equal distributions always lead to higher output in the traditional neo-Kaleckian macroeconomic model. We also present conditions under which a reduction of income inequality among workers turns demand more wage-led. This view is supported by the results of an econometric study for the United States (1967-2010) which show that the rise after 1980 in income inequality has made the US economy more profit-led.

Suggested Citation

  • Laura Carvalho & Armon Rezai, 2014. "Personal Income Inequality and Aggregate Demand," Working Papers, Department of Economics 2014_23, University of São Paulo (FEA-USP).
  • Handle: RePEc:spa:wpaper:2014wpecon23
    as

    Download full text from publisher

    File URL: http://www.repec.eae.fea.usp.br/documentos/Carvalho_Rezai_23WP.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rudiger von Arnim & Daniele Tavani & Laura Barbosa de Carvalho, 2012. "Globalization as coordination failure: A Keynesian perspective," Working Papers 1202, New School for Social Research, Department of Economics.
    2. Armon Rezai, 2013. "Cycles of demand and distribution and monetary policy in the U.S. economy," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(2), pages 231-250.
    3. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-393, December.
    4. Thomas Palley, 2010. "The Relative Permanent Income Theory of Consumption: A Synthetic Keynes-Duesenberry-Friedman Model," Review of Political Economy, Taylor & Francis Journals, vol. 22(1), pages 41-56.
    5. Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 9(4), pages 383-403, December.
    6. Tavani, Daniele & Vasudevan, Ramaa, 2014. "Capitalists, workers, and managers: Wage inequality and effective demand," Structural Change and Economic Dynamics, Elsevier, vol. 30(C), pages 120-131.
    7. Eckhard Hein & Lena Vogel, 2008. "Distribution and growth reconsidered: empirical results for six OECD countries," Cambridge Journal of Economics, Oxford University Press, vol. 32(3), pages 479-511, May.
    8. Christian R. Proaño & Peter Flaschel & Hans-Martin Krolzig & Mamadou Bobo Diallo, 2011. "Monetary policy and macroeconomic stability under alternative demand regimes," Cambridge Journal of Economics, Oxford University Press, vol. 35(3), pages 569-585.
    9. Lance Taylor & Armon Rezai & Rishabh Kumar & Laura de Carvalho & Nelson Barbosa, 2013. "U.S. Size Distribution and the Macroeconomy, 1986-2009," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2013-1, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    10. Nelson H. Barbosa-Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy-A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, July.
    11. Michalis Nikiforos & Duncan K. Foley, 2012. "Distribution And Capacity Utilization: Conceptual Issues And Empirical Evidence," Metroeconomica, Wiley Blackwell, vol. 63(1), pages 200-229, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Income inequality; demand regimes; Neo-Kaleckian model; personal and functional income distribution;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spa:wpaper:2014wpecon23. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Pedro Garcia Duarte). General contact details of provider: http://edirc.repec.org/data/deuspbr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.