Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110004
Authors: 
Giovannoni, Olivier
Year of Publication: 
2014
Series/Report no.: 
Working Paper, Levy Economics Institute 807
Abstract: 
Recent research stresses the macroeconomic dimension of income distribution, but no theory has yet emerged. In this note, we introduce factor shares into popular growth models to gain insights into the macroeconomic effects of income distribution. The cost of modifying existing models is low compared to the benefits. We find, analytically, that (1) the multiplier is equal to the inverse of the labor share and is about 1.4; (2) income distribution matters mostly in the medium run; (3) output is wage led in the short run, i.e., as long as unemployment persists; (4) capacity expansion is profit led in the full-employment long run, but this is temporary and unstable.
Subjects: 
Economic Growth
Income Distribution
Multiplier
Factor Share
Output Capacity
Instability
JEL: 
D33
E25
Document Type: 
Working Paper

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