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The Pasinetti Index and the Rise of Inequality in the Age of Unconventional Monetary Policy in Japan

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  • Yuki Tada
  • Kazuhiro Kurose

Abstract

There are increasing concerns in Japan that unconventional monetary policy (UMP) accelerates inequality by the asset price mechanism, allowing the higher income group to gain extra capital income. The UMP does have limited accounting in creating real wage growth as well as restoring demand and growth as the overall economy has been stagnant. We revisit the issue of income inequality in Japan by using Pasinetti’s approach of measuring personal income distribution and also examine its effect on the effective demand and functional income distribution. We implement workers’ debt-augmented Pasinetti Index (PI) as a proxy of personal income distribution, moving away from workers towards rentiers in their interpersonal lending and borrowing relations. Our empirical result with the VAR model for the case of Japan shows 1) higher PI restrains the effective demand. 2) Higher rentier income also affects the wage share negatively through a decrease in capacity utilization.

Suggested Citation

  • Yuki Tada & Kazuhiro Kurose, 2024. "The Pasinetti Index and the Rise of Inequality in the Age of Unconventional Monetary Policy in Japan," TERG Discussion Papers 488, Graduate School of Economics and Management, Tohoku University.
    • Handle: RePEc:toh:tergaa:488
    DOI: 10.50974/0002001323
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