Working Paper 2/2016

Autonomous government expenditure growth, deficits, debt and distribution in a neo-Kaleckian growth model

Eckhard Hein

July, 2016

Abstract: This paper is linked to some recent attempts at including a non-capacity creating autonomous expenditure category as the driver and determinant of growth into Kaleckian distribution and growth models. Whereas previous contributions have focussed on taming Harrodian instability, generated by the deviation of the goods market equilibrium rate of capacity utilisation from a normal or target rate of utilisation, we rather focus on the so far neglected issues of deficit, debt and distribution dynamics in such models. For this purpose we treat the growth of government expenditures on goods and services, financed by credit creation, as the exogenous growth rate driving the system. We examine the medium-run convergence of the system towards such a growth rate, analyse the related long-run debt dynamics and deal with stability and income distribution issues. Finally we touch upon the economic and, in particular, fiscal policy implications of our model results.

JEL codes: E11, E12, E25, E62

Keywords: Government deficits and debt, public expenditure growth, Kaleckian distribution and growth model

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