On the Short-run Relationship between the Income Distribution- and Finance-Growth Regimes

This paper examines the short-run relationship between the income distributionand finance-growth regimes using a simple post-Keynesian demand-driven model. While each mechanism of wage-led and profit-led growth has been revealed, its relationship with debt-led and debt-burdened growth, and vice versa, is yet to be clarified. This is because the argument on these growth regimes has been developed separately. By constructing a simple post-Keynesian model that generates these regimes, this paper examines their relationship. It is shown 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 the diversity of economic growth—including the complementarity of growth regimes to shocks—that are in contrast to the implications of the basic neo-classical model on income distribution and money. In addition, by doing so, this paper also validates recent empirical results.