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Fiscal policy and social infrastructure provision under alternative growth and distribution regimes

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  • Hiroshi Nishi
  • Kazuhiro Okuma

Abstract

Recent crises show that the market economy does not function autonomously but needs re-silient social, natural, and institutional foundations. Accordingly, fiscal sustainability cannot be ignored, and the government’s role in fiscal policy and social infrastructure provision is becoming increasingly important. We build a Kaleckian dynamic model that can comprehen-sively analyse the growth, distribution, and employment rate of the government’s social infra-structure and debt accumulation under alternative growth and distribution regimes. The model allows for not only wage-led growth (WLG) and profit-led growth (PLG) regimes but also labour-market-led (LML) and goods-market-led (GML) distribution regimes. Particular attention is paid to the demand effects of fiscal policy and productivity growth effect of social infrastructure investment. Our model derives the following results. A combination of alterna-tive growth and distribution regimes is important for stability. This demonstrates that the cy-clical behaviours of the WLG/GML and PLG/LML regimes are highly contrasting. When gov-ernment debt also changes in the long run, the Domar condition is required for stability. In contrast to the principally Kaleckian nature, the long-run economic growth rate depends not on demand or fiscal parameters but on supply side parameters determining the natural growth rate. Based on these results, we explain that the government can still play an im-portant role in stabilising the economy, improving the quality of social infrastructure, and achieving a resilient economy.

Suggested Citation

  • Hiroshi Nishi & Kazuhiro Okuma, 2023. "Fiscal policy and social infrastructure provision under alternative growth and distribution regimes," Working Papers PKWP2304, Post Keynesian Economics Society (PKES).
    • Handle: RePEc:pke:wpaper:pkwp2304
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    References listed on IDEAS

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    Cited by:

    1. Hiroshi Nishi & Kazuhiro Okuma, 2023. "Social common capital accumulation and fiscal sustainability in a wage-led growth economy," Working Papers PKWP2305, Post Keynesian Economics Society (PKES).

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    More about this item

    Keywords

    Fiscal policy; social infrastructure; Kaleckian model; growth regime; distribution regime;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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