Debt Servicing, Aggregate Consumption, and Growth

34 Pages Posted: 8 Dec 2013

See all articles by Mark Setterfield

Mark Setterfield

New School for Social Research

Yun Kim

Trinity College (Hartford CT)

Multiple version iconThere are 2 versions of this paper

Date Written: December 7, 2013

Abstract

We develop a neo-Kaleckian growth model that emphasizes the importance of consumption behavior. In our model, workers first make consumption decisions based on their gross income, and then treat debt servicing commitments as a substitute for saving. Workers' borrowing is induced by their desire to keep up with the consumption standard set by rentiers' consumption, reflecting an aspect of the relative income hypothesis. As a result of this consumption and debt servicing behavior, consumer debt accumulation and income distribution have effects on aggregate demand, profitability, and economic growth that differ from those found in existing models. We also investigate the financial sustainability of the Golden Age and Neoliberal growth regimes within our framework. It is shown that distributional changes between the Golden Age and the Neoliberal regimes, together with corresponding changes in consumption emulation behavior via expenditure cascades, suffice to make the Neoliberal growth regime unsustainable.

Keywords: Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth

JEL Classification: E12, E44, O41

Suggested Citation

Setterfield, Mark and Kim, Yun, Debt Servicing, Aggregate Consumption, and Growth (December 7, 2013). Available at SSRN: https://ssrn.com/abstract=2364769 or http://dx.doi.org/10.2139/ssrn.2364769

Mark Setterfield (Contact Author)

New School for Social Research ( email )

6 East 16th Street
New York, NY 10003
United States

Yun Kim

Trinity College (Hartford CT) ( email )

300 Summit Street
Hartford, CT 06106
United States

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