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

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  • Fanti, Lucrezia
  • Zamparelli, Luca

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.

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  • Fanti, Lucrezia & Zamparelli, Luca, 2020. "The Paradox of Thrift in the Two-Sector Kaleckian Growth Model," MPRA Paper 99210, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:99210
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    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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    6. Beqiraj, Elton & Fanti, Lucrezia & Zamparelli, Luca, 2019. "Sectoral composition of output and the wage share: The role of the service sector," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 1-10.
    7. 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.
    8. Shinya Fujita, 2015. "Mark-up Pricing, Sectoral Dynamics, and the Traverse Process in a Two-Sector Kaleckian Economy," Discussion papers e-15-005, Graduate School of Economics Project Center, Kyoto University.
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    14. Dutt, Amitava Krishna, 1997. "Profit-Rate Equalization in the Kalecki-Steindl Model and the "Over-Determination" Problem," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(4), pages 443-451, September.
    15. G. C. Harcourt, 1965. "A Two‐Sector Model Of The Distribution Of Income And The Level Of Employment In The Short Run," The Economic Record, The Economic Society of Australia, vol. 41(93), pages 103-117, March.
    16. Nishi, Hiroshi, 2020. "A two-sector Kaleckian model of growth and distribution with endogenous productivity dynamics," Economic Modelling, Elsevier, vol. 88(C), pages 223-243.
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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

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