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The paradox of thrift in a two‐sector Kaleckian growth model
Author(s) -
Fanti Lucrezia,
Zamparelli Luca
Publication year - 2021
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12332
Subject(s) - economics , profitability index , investment function , investment (military) , profit (economics) , growth model , microeconomics , rate of profit , capacity utilization , monetary economics , aggregate demand , labour economics , production (economics) , monetary policy , finance , politics , political science , law
We analyze the paradox of thrift in a two‐sector Kaleckian growth model. We consider an economy with one consumption and one investment good, differential sectoral mark‐ups and profit rates equalization. We show that when the investment function depends on aggregate capacity utilization and on the aggregate profit share (the Bhaduri–Marglin investment function) the paradox of thrift in its growth version may fail if mark‐ups are higher in the investment good sector. In this case, an increase in the saving rate produces a reallocation of economic activity toward the investment good sector; the aggregate profit share rises and its positive effect on investment may offset the reduction in average capacity utilization if investment is relatively more sensitive to profitability than to the level of activity.