Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/203933 
Year of Publication: 
2010
Series/Report no.: 
wiiw Working Paper No. 68
Publisher: 
The Vienna Institute for International Economic Studies (wiiw), Vienna
Abstract: 
What are the economic effects of redistributing one dollar from profits to labour income? We address this question for the post-World War II economies of the United States and Canada within a structural VECM procedure allowing for up to two breaks of unknown timing. In the United States the short-run spending effect on growth, set in motion by higher labour income, is strong enough to make such a redistribution an attractive, maybe provocative, policy alternative. Across the border in Canada, however, the negative medium-run capacity effect, brought about by diminished profits, dominates the picture more or less from the beginning and output slumps considerably, a result actually suggesting a - maybe even more provocative - redistribution towards profits. We discuss several possible explanations such as the formation of expectations and the different exposure to international trade. Methodologically, we provide a novel procedure to estimate cointegrating rank and break dates jointly.
Subjects: 
redistribution
structural VECM
joint estimation of cointegrating rank and multiple break dates
JEL: 
C32
C53
E12
E25
Document Type: 
Working Paper

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