Demand-Led Growth, Income Distribution and Debt

Abstract

The paper presents a medium-run growth model led by aggregate demand and coherent with minskian financial instability approach. The impact of wage share changes on growth and unemployment is studied within a dynamic framework, characterized by a regime switching technique and a learning mechanism. The model makes two main contributions to the debate: it shows the impact on actual growth, as well as the steady state. Secondly, it illustrates how instability generated by wage changes in a “bad” regime can accelerate the entrance in a “good” regime improving the overall rate of growth without necessarily causing instability in the large.