A neo-Kaleckian model of capital accumulation, income distribution and financial fragility

This paper develops a neo-Kaleckian dynamical model that investigates how an increased financial instability affects the investment rate and the wage share of income in the long run. It is shown that a rising benchmark interest rate affects negatively the capital accumulation and the wage share of income. The main argument is developed in two-steps. First, it is build a two-dimensional model to analyse the stability conditions of the dynamical interaction between wage share and capital accumulation, given a constant debt-capital ratio. Second, by allowing endogenous variations of the debt of firms as a proportion of their capital stock, the extended model explores the stability conditions of the steady-state equilibrium solution in a three-dimensional dynamic system. In doing so, this paper contributes to the literature by setting the conditions in which the debt-capital ratio, the income distribution and the process of capital accumulation can be simultaneously stable in the long run.