A Kaleckian growth model with public capital and debt accumulation

Abstract

We develop a three-dimensional Kaleckian growth model that incorporates public capital, labour productivity growth, and government debt accumulation, and present three main findings. First, a positive labour productivity growth rate and the Domar condition are essential for a stable, steady state. Second, a proactive fiscal stance promotes economic growth and capital composition. Finally, in the wage-led growth regime, a pro-labour income distribution boosts economic growth and capital composition while reducing the government debt ratio, whereas in the profit-led growth regime, a pro-capital income distribution increases economic growth, capital composition, and the government debt ratio.