Functional Distribution of Income and Economic Activity in Croatia: Post-Keynesian Approach

Abstract

In this paper we present and empirically test assumptions and conclusions of a Post-Keynesian macroeconomic model on real sector data of Croatian economy in the period 2000-2012. The aim is to quantify the effects of changes in functional income distribution on selected macroeconomic variables in Croatia, and try to answer three questions: (i) is the accumulation of capital in Croatia wage-led or profit-led, (ii) whether Croatia has stagnant or accelerating growth regime, (iii) whether the labor market movements are more affected by demand side or supply side shocks. The results show that, under the assumptions of the theoretical model, the accumulation of capital in Croatia in the analyzed period was led by income from labor. However, the results also show that in that period Croatia had accelerating growth regime, i.e., the capacity utilization was profit-led. Unemployment is partly determined by demand factors and profit shares, while the supply side changes are undetermined. Because of ambiguous results it is necessary to conduct further research of contribution of labor income and capital income to economic growth in Croatia.

Keywords: functional distribution of income, Post-Keynesian macroeconomic model, Croatian economy, SVAR

JEL Classification: E12, E21, E25