Changing quantile distributive growth cycles

Abstract

This paper examines the changes in the dynamic interactions between short-run economic growth (EG) and functional income distribution (ID) before and during contemporary neoliberal capitalism in the USA. We estimate structural quantile vector autoregression models, thus studying the dynamic changes that have occurred in all parts of the conditional probability distributions of both EG and ID. First, we find evidence of important reductions in the profit-led effect across the whole probability distribution of EG during neoliberalism. Second, we find that profit squeeze dynamics have decreased at most parts of the probability distribution of ID but have increased its effect in the left tail of the latter, thus becoming more heterogeneous across the probability distribution of ID. Although the underlying transmission mechanisms have remained unaltered across the two periods, our results highlight that the interactions between EG and ID have become a more complex phenomenon to study since the mid-1980s.