Corporate debt, endogenous dividend rate, instability and growth

Abstract

AbstractIn a neo‐Kaleckian growth‐model, we endogenize the dividend rate and corporate debt in the long run and investigate the possibility of multiple equilibria and instability in the economy. We find that the economy is in a wage‐led demand and debt‐burdened growth regime. However, both debt‐led and debt‐burdened demand regimes are possible. In some instances, the speed of the adjustment parameter related to the dividend dynamics plays a crucial role in stabilizing the economy. Otherwise, the economy may lose its stability and gives birth to limit cycles. A rise in the floor level of the targeted dividend–capital ratio has a destabilizing effect on the economy. The same is true for a rise in the interest rate. Moreover, a significant rise in the interest rate may cause instability in the economy. Therefore, a lower value of the floor level of the targeted dividend–capital ratio and a lower level of interest rate are desirable for promoting stability in the economy.