Corporate debt, endogenous dividend rate, instability and growth

Abstract

In a neo-Kaleckian growth-model, we endogenize the dividend rate and corporate debt in the long run and investigate the possibility of multiple equilibria and instability in the economy. We find that the economy is in a wage-led demand and debt-burdened growth regime.However, both debt-led and debt-burdened demand regimes are possible. In some instances, the speed of the adjustment parameter related to the dividend dynamics plays a crucial role in stabilizing the economy.Otherwise, the economy may lose its stability and gives birth to limit cycles. A rise in the floor level of the targeted dividend-capital ratio has a destabilizing effect on the economy. The same is true for a rise in the interest rate. Moreover, a significant rise in the interest rate may cause instability in the economy. Therefore, a lower value of the floor level of the targeted dividend-capital ratio and a lower level of interest rate are desirable for promoting stability in the economy.

Worker household debt, functional income distribution and growth: A neo‐Kaleckian perspective

“…BothCharles (2008) andKim and Isaac (2017) assume a positive relationship between the debt and retention ratio. However, inParui (2022), we propose that precisely the opposite happens. Second,Charles (2008) andKim and Isaac (2017) assume the debt-capital ratio as the only determinant of the retention ratio, whereasDallery and van Treeck (2011) andYilmaz and Stockhammer (2019) consider the rate of profit as the determinant of the retention ratio.…”

“…Second,Charles (2008) andKim and Isaac (2017) assume the debt-capital ratio as the only determinant of the retention ratio, whereasDallery and van Treeck (2011) andYilmaz and Stockhammer (2019) consider the rate of profit as the determinant of the retention ratio. Along with the debt-capital ratio, the expected future rate of profit and expected growth rate are also significant determinants of firms' targeted dividend capital ratios, both of which we include inParui (2022). On these grounds, our model(Parui, 2022) provides a more general explanation of dividend (or retention) dynamics than the existing literature.…”

“…Along with the debt-capital ratio, the expected future rate of profit and expected growth rate are also significant determinants of firms' targeted dividend capital ratios, both of which we include inParui (2022). On these grounds, our model(Parui, 2022) provides a more general explanation of dividend (or retention) dynamics than the existing literature.…”