Corporate Debt, Variable Retention Rate and the Appearance of Financial Fragility

This paper develops a formal neo-Kaleckian model of growth and distribution with excess capacity. First, we deal with the stability and uniqueness of equilibrium in the short run and make some comparative static exercises. Then we show the long run behaviour of the model by endogenising the retention rate and the level of debt. Within that framework, we investigate the conditions for multiple equilibria and show the possibility of instability following a series of increases in the rate of interest or as a result of less prudent dividend policies on the part of firms