Demand Regimes Research Articles

Effects of Income Distribution and Fiscal Policy on Growth in Turkey: A Kaleckian Analysis

This study examines the effects of functional income distribution and fiscal policy on growth in Turkey. A post-Kaleckian open economy model is used to analyze the Turkish economy by integrating fiscal policy tools into the econometric model, such as tax burdens on labor and capital and government expenditure for 1988–2017. The novelty of our study is that it considers the private profit motive and rollback of government activities by including public-private partnership investments in the model. Our findings suggest that government ideologies in providing services through different channels do not cause alteration in the domestic demand regime; it stays wage-led in all scenarios we applied. Yet, the overall regime turns out to be profit-led since net export is sensitive to labor costs. JEL Classification: E12, E62, L33

The incidence of tax rates on workers’ debt stability and demand regimes

This paper explores different tax regimes in a Post Keynesian model where workers get into debt to emulate the consumption of upper-income classes. The government taxes income to fund a social wage that would reduce workers’ need to get into debt. Three tax regimes are analyzed: taxing profits, managers’ wages, or both. In a numerical exercise, we explore the effects of changing the within-wage and functional inequalities. The government’s income tax choices and the wage bill’s distribution matter for the economy’s sustainability and the relationship between distribution and growth. The demand regime of the economy is not independent of policy. Taxing only profits and reducing wage inequality are the best possible outcomes in the model if we were to wind down the unsustainability feature of neoliberalism without sacrificing real performance.

Standard Post-Keynesian investment functions and their demand regime: a comprehensive empirical estimation for France

The aim of this article is twofold. In a first step, we estimate a large variety of standard Post-Keynesian investment functions for France over the period 1979–2020 by rigorously following the original features of a theoretical macro-model of growth and distribution. In a second step, for each of these investment functions, we also assess the corresponding demand regime contributing to the current profit-led/wage-led debate. Our results show that the French economy seems to be wage-led. Besides, the intensity of the regime varies greatly with the specific form of the investment function under consideration.

From export boom to private debt bubble: a macroeconomic policy regime assessment of Canada’s shifting growth regime

This paper examines the emergence of private debt-led growth in Canada since the Global Financial Crisis (GFC) by means of a growth regime and macroeconomic policy regime assessment. Examining each of the four business cycles in the 1983–2020 period, roughly encompassing the entirety of the neoliberal period, results demonstrate the emergence of a ‘rising’ weakly export-led growth regime in the early 1990s, a shift to a ‘falling’ weakly export-led regime by 2001, and a turn to a debt-led private demand regime since the GFC. The macroeconomic policy regime then identifies the structural changes and policy factors that have contributed to Canada’s shifting growth regime. While price competitiveness played an important role in the first three cycles, it failed to re-establish an export-led regime in the post-GFC period due to decreased non-price competitiveness. Instead, the post-GFC combination of low real interest rates, which encouraged the accumulation of private debt and fiscal policy, which ex post did not address the negative financial balances of the household sector, supported the turn to private debt-led growth.

Repression and growth in the periphery of Europe: The politics of changing growth regime in Turkey

This study shows that in peripheral economies that are linked into circuits of global capital on unequal terms, attempts to change the core features of an existing growth regime without broader political support intensify externally induced conflict among the ruling coalition. Under these circumstances, a transition to a new demand regime within a short time frame is more likely to take place via authoritarian intervention when the political cost of repression is lower than the cost of redistribution. In developing these points, the analysis builds on evidence from Turkey: following the 2008 global credit crunch, the Justice and Development Party’s (Adalet ve Kalkinma Partisi, AKP) domestic demand-led and credit-fueled growth under dependent financialization has experienced a major crisis. However, the subsequent push to replace this regime with a profit-led model with an emphasis on exports worsened the conflict among the political coalition supporting the party as their preferences over monetary policy began to diverge. A temporary resolution of this deepening rift has been possible by way of an authoritarian intervention under R. T. Erdogan’s presidential bid in 2017–18. By situating the debate on the relationship between growth regimes and political institutions, the study further unpacks the nexus between democratic backsliding, dominant social blocs, and economic growth in the periphery of Europe.

Consumption Emulation and Demand Regimes: An Inclusive Modeling Approach

ABSTRACT Personal income distributions robustly follow a two-class structure, with an exponential bulk of labour income accruing to the lower 95 - 99 % population share and an upper Pareto tail of the 1 - 5% richest, where capital income is concentrated. The implications of this regularity for macroeconomic outcomes, especially aggregate consumption, are not yet fully understood, though. We introduce this two-class structure into a Post-Keynesian consumption model with workers and capitalists corresponding to the two classes within the personal distribution. Agents consume according to idiosyncratic and social motives. Status consumption is microfounded within a perception network that replicates empirically observed inequality and social self-perceptions. Our findings indicate that the non-market interactions in perception networks are potentially highly relevant for aggregate outcomes and that they can shed some light on recent puzzles in the Post-Keynesian literature on growth regimes. In particular, we show how network segregation can explain differences in the degree of ‘wage-ledness’ of aggregate consumption. Aggregate representations of consumption might thus be misleading. Empirical studies should therefore take the regularities both in the income distribution as well as social network topologies into account.

At the Intersection between Class and Gender: Unpaid Household Work and Macroeconomic Demand Regimes

At the Intersection between Class and Gender: Unpaid Household Work and Macroeconomic Demand Regimes

Entrants heterogeneity, pre-entry knowledge, and the target industry context: a taxonomy and a framework

Abstract This paper advances a general and unified framework to explain the patterns of entry in an industry. The specificity of a type of entrant is examined based on the match between the entrant’s prior experience, in terms of knowledge endowment, and the target industry context. The knowledge endowment is analyzed by focusing on its content—market, technological, organizational, and scientific—and its generic and specific nature. The target industry context is examined by looking at four basic dimensions: the stage of development of the target industry (the time dimension); the specific technological regime and related innovation patterns (the technological dimension); the demand regime (the demand dimension); and the institutional regime (the institutional dimension). These dimensions moderate the matching between the knowledge endowment of the type of entrants and the features of the industrial contexts. Our newly proposed taxonomy offers a more systematic and nuanced explanation of how the complex relationship between pre-entry experience and knowledge, entrants and the chosen target industry evolves over time.

Import Dependence of Exports, Aggregate Demand and Income Distribution in the Turkish Economy: A Post-Keynesian Econometric Analysis

This study aims to investigate the impact of import dependence on exports on the relation between aggregate demand and functional distribution of income in the Turkish economy. To achieve this, the model proposed by Stockhammer, Hein, and Grafl (2011) was employed and applied to the Turkish economy throughout 1988-2019. The findings indicate that the demand regime was wage-led in Türkiye throughout the sample period, and the integration of import content of exports into the analysis renders the demand regime even slightly more wage-led. Subperiod analyses show that even though the negative effect of a higher labor share in total income on net exports has doubled in absolute value from the 1995-98 subperiod to the 2008-18 subperiod, the positive effect of a higher labor share on private consumption expenditures did not only counterbalance but exceeded it, while its negative effect on private investment remained relatively small and constant over the subperiods. Our findings also show that the integration of import content of exports into the analysis also rendered all the subperiods moderately more wage-led.

Growth regimes, dominant social blocs and growth strategies: towards varieties of export-led growth regimes and strategies in Turkey and Poland

This paper aims to contribute to the literature on growth regimes by combining an operationalization of growth regimes based on growth contributions and sectoral financial balances with an analysis of dominant social blocs (DSBs). We propose the concept of a growth strategy to bridge the political and actor-oriented sphere with the macroeconomic sphere. We employ this framework to analyze the cases of Poland and Turkey. The study identifies a transition from a domestic demand-led regime to a weakly export-led regime in Poland, while Turkey experienced a shift from a domestic demand-led regime to a debt-led private demand regime and subsequently towards a weakly export-led regime, too. Both countries’ new DSBs pursue export-led growth strategies, but Poland’s strategy focuses on non-price competitiveness while Turkey relies on price competitiveness. We lay out the differences between the strategies in terms of policies and the capital fractions supporting them.

Debt and demand regimes in simplified growth models: a comparison of neo-Kaleckian and Supermultiplier models

Abstract The paper compares stock-flow consistent (SFC) versions of extended canonical neo-Kaleckian and Supermultiplier models that deal with either households’ or firms’ debt accumulation. This comparison aim is twofold: (i) to evaluate the differences of a debt accumulation process in these models due to their specific closures; (ii) to provide a pedagogical tool for understanding the basic features of each model when dealing with similar issues. In the short run, we find that the relation of debt ratios, demand and growth is similar for both models. In the long run of the Supemultiplier model, only the Minskyan debt regime is economically viable for the firms’ sector. As for the household sector, the paradox of debt is indeed a feature of the canonical Supermultiplier model, yet there may be episodes of rising debt-toincome ratios. As for the neo-Kaleckian model, firms’ leverage ratio can be either pro- or anti-cyclical; in the household sector, the absence of the paradox of debt seems to be the most likely scenario.

Income inequality in terms of a Gini coefficient: a Kaleckian perspective

Abstract This study presents a theoretical framework that connects functional income distribution and personal income distribution from the Kaleckian perspective and investigates the effects of changes in mark-up rate and interest rate on income inequality in terms of the Gini coefficient. The results demonstrate that a rise in the mark-up rate with weak bargaining power of workers raises the Gini coefficient irrespective of a profit-led or wage-led demand regime. The analyses also demonstrate that a decline in the interest rate negatively affects the Gini coefficient if and only if the bargaining power of workers is sufficiently strong.

Inequality, Consumption Emulation, and Growth

We develop a short-run neo-Kaleckian model to investigate the interplay of the functional and personal distribution of income and their impact on growth. Personal distribution becomes relevant in light of the institutionalist hypothesis of consumption emulation, which makes aggregate saving dependent on the concentration of wages and profits. A more equal distribution of wages and/or profits increases aggregate demand and the rate of capacity utilization. But the wage- or profit-led demand regime crucially depends on the difference between the propensity to save out of profits and that out of wages, as well as on the impact of changes in the profit and wage shares on the concentration of personal incomes. Preliminary evidence on Italy over the period 1980s–2010s highlights that demand regimes might be a relatively short-term and cyclical characteristic of that economy, with changes in the demand regime partly explained by changes in personal income distribution. JEL Classification: E11, D31, B52

Fiscal expansion, government debt and economic growth: a post-Keynesian perspective

Constructing a post-Keynesian macro-model, we investigate the impact of fiscal expansion on aggregate demand and economic growth, explore public debt sustainability, and analyze whether fiscal policy plays any role in stabilizing the economy. We explore how the interaction between capital accumulation and government debt opens the possibility of multiple equilibria and instability in the economy. We investigate the impact of various parameters on short-run aggregate demand and long-run equilibrium growth rate, and public debt-capital ratio. We explore the relationship between a progressive tax system and a wage-led demand regime. In some cases, a sufficiently high government expenditure to GDP ratio is essential for achieving stability in the system. A sufficiently high government expenditure to GDP ratio ensures economic stability in other circumstances. The possibility of the limit cycle is also explored. Higher autonomous investment demand is desirable as it enhances the stable region of the economy.

Partial identification for growth regimes: The case of Latin American countries

AbstractThis study introduces the partial identification of the structural vector autoregressive model to estimate the effect of income distribution on output. For this purpose, this study follows the Post‐Keynesian growth models and identifies the demand regimes in Latin American countries for the period 1960–2014. The main results reveal that Bolivia, Colombia, Honduras, and Panama have profit‐led regimes. In addition, Costa Rica, Nicaragua, Peru, and Uruguay have wage‐led regimes. The regimes of Brazil, Chile, Ecuador, and Mexico could not be determined.

Personal income distribution and the endogeneity of the demand regime

Abstract This paper deals with two intrinsically linked issues: the endogeneity of the demand regime and the personal distribution impact on aggregate demand. By assuming that saving is a function of personal rather than functional income distribution, an increase of the labour share is effective in boosting consumption and aggregate demand, not per se, but only as long as it reduces personal inequality. As the labour share increases, both the demand regime type—the sign of the slope of the demand schedule—and its strength—the size of the slope of the demand schedule - can endogenously change. Concerning the former, there can be a threshold value for the wage share beyond which there is a shift from wage-led to profit-led demand. The analysis shows that, unlike most Kaleckian models, profit inequality is just as important as wage inequality in determining the demand regime type and its strength.

Intellectual property crises induced by incumbent firms and latecomer firms’ catch-up performance: evidence from different sectoral environments

ABSTRACTWhy and how do incumbent firms (IFs) induce crises for latecomer firms? How do latecomer firms (LCFs) manage the crises, and how does crisis management affect LCFs’ catch-up? To answer these questions, we look at crises induced by IFs and LCFs’ crisis management by drawing on competitive dynamics and crisis management theories. Based on two case studies in the telecommunications sector, we find that IFs induce crises using intellectual property (IP) lawsuits (called IP crises) for hindering LCFs’ catch-up. Two LCFs achieved different catch-up performance based on the effectiveness of subsequent IP crisis management. In particular, we also find that the sectoral environments, in terms of technological and demand regimes, can act as a moderator in the relationship between the IP crisis management and the catch-up performance. We propose a more fine-grained view in catch-up studies by suggesting that the constructs ‘IFs-induced IP crises’ and ‘LCFs’ IP crisis management”.

A wage-led or profit-ledge demand regime: the case of Jordan (1990-20220)

Purpose- For too long, the performance of the Jordanian economy has been dissapointing. During the period 2010-2020, the mean annual growth rate in real Gross Domestic product (GDP) was equal to 2.0 percent. In addition, the overall unemployment rate increased from 12.5 percent in 2010 to 23.2 percent in 2020. To decrease the doublie-digit unemployment, any growth strategy requires a good understanding of the characteristics of the Jordanian economy. In other words, increasing the profit share in a wage-led economy, and increasing the wage share in a profit-led economy will both have negative consequences to economic growth. Therefore, it important to identify whether the Jordanian economic regime is wage-led or profit-led. Methodology- This paper investigates the effect of changes in the functional income distribution on economic growth in Jordan during the period 1990-2020. An autoregressive distributed lag (ARDL) approach is used to assess the presence of the long-run relationship between changes in income distribution and aggregate demand. Findings- Based on the estimated results, it is argued that the the demand regime in the Jordanian economy Jordan is wage-led. In other words, an increase in the wage-share leads to higher economic growth. Conclusion- Given the challenge of unemployment, the Jordanian government and the leaders of the private sector should not allow the supply and demand sides of the labor market determine wages. The economy needs pro-labor institutional reforms to realize strong and sustainable economic growth rates. Keywords: Jordan, growth, unemployment, wage-led, profit-led, net exports, ARDL, cointegration. JEL Codes: B50, E11, E12

From Social Structures to Techno-Economic Paradigms: Comparison of Four Phases of Capitalism Theories

The 2008 great financial crisis brought the question of the cyclical development of capitalism back to the center of political economy. To understand the nature of post-crisis capitalism, it is inevitable to evaluate the literature on the temporal phases of capitalism. This article presents four theories about the periodization of capitalism: the social structure of accumulation theory, regulation theory, techno-economic paradigm approach and systemic cycles of accumulation school. The article shows that, despite the different perspectives, each of the phasing approaches leads to similar results about the periods of capitalism. Moreover, the article concludes that every phase of capitalism has four elements: techno-economic paradigm, socio-institutional structures, demand regime and hegemonic state.

Modeling the hourly consumption of electricity during period of power crisis

<abstract><p>In this paper, we capture the dynamic behavior of hourly consumption of electricity during the period of power crisis ("dumsor'' period) in Ghana using two-state Markov switching autoregressive (MS-AR) and autoregressive (AR) models. Hourly data between the periods of January 1, 2014 and December 31, 2014 was obtained from the Ghana Grid company and used for the study. Using different information criteria, the MS(2)-AR(4) is selected as the optimal model to describe the dynamic behavior of electricity consumption during periods of power crisis in Ghana. The parameters of the MS(2)-AR(4) model are then estimated using the expectation-maximization algorithm. From the results, the likelihood of staying under a low electricity consumption regime is estimated to be 87%. The expected duration for a low electricity consumption regime is 7.8 hours, and the high electricity consumption regime is expected to last 2.3 hours before switching to the low demand regime. The proposed model is robust as compared to the autoregressive model because it effectively captures the dynamics of electricity demand over time through the peaks and significant fluctuations in consumption patterns. Similarly, the model can identify distinct regime changes linked to electricity consumption during periods of power crises.</p></abstract>