Inequality, Debt Servicing, and the Sustainability of Steady State Growth

Abstract

We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance. A standard Kaleckian growth model is modidied to incorporate working households who borrow to finance consumption that is determined, in part, by the desire to emulate the consumption patterns of more affluent households. The impact of this behavior on the sustainability of the growth process is then studied by means of a numerical analysis that captures various dimensions of income inequality. When compared to previous contributions to the literature, our results show that the way in which debtor households service their debt has both quantitative and qualitative effects on the economy's macrodynamics.