On the short-run relationship between the income distribution-growth and debt-growth regimes

Abstract

This paper examines the short-run relationship between the income distribution-growth and debt-growth regimes using a simple, post-Keynesian, demand-driven model. While mechanisms of wage-led and profit-led growth have been revealed, their relationship with debt-led and debt-burdened growth is yet to be clarified, because arguments on these growth regimes were developed separately. This paper shows that the growth regimes transform as the regime-switching parameters in the IS balance change. By way of theoretical analysis, this paper presents some important implications for (i) the possibility of the combination of growth regimes; (ii) the features of post-Keynesian economic analysis of income distribution, debt, and demand-led growth, which sharply contrast with the basic neo-classical theory; and (iii) theoretical validation of recent empirical results. Moreover, this paper also suggests some policy implications or lessons for the combination of economic growth regimes.