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Inequality and growth in neo-Kaleckian and Cambridge growth theory

Thomas I. Palley

Keywords: income inequality; growth; neo-Kaleckian theory; Cambridge growth theory

This paper examines the relationship between inequality and growth in the neo-Kaleckian and Cambridge growth models. It explores the channels whereby functional and personal income distribution impact growth. The growth–inequality relationship can be negative or positive, depending on the economy's characteristics. Contrary to widespread claims, inequality per se does not impact growth through macroeconomic channels. Instead, both growth and inequality are impacted by changes in the underlying forms and pattern of income payments. However, inequality is critical at the microeconomic level as it explains differences in household propensities to consume which are at the foundation of neo-Kaleckian and Cambridge growth theory.

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