Innovation, Unemployment and Policy in the Theories of Growth and Distribution
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Innovation, Unemployment and Policy in the Theories of Growth and Distribution

Edited by Neri Salvadori and Renato Balducci

Innovation, Unemployment and Policy in the Theories of Growth and Distribution increases our understanding about the more relevant economic determinants and policy aspects of the interdependence between economic growth and income distribution.
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Chapter 11: Government debt, growth and inequality in income distibution: a post-Keynesian analysis

Pasquale Commendatore, Carlo Panico and Antonio Pinto

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11. Government debt, growth and inequality in income distribution: a post-Keynesian analysis Pasquale Commendatore, Carlo Panico and Antonio Pinto 11.1. INTRODUCTION Since the 1970s an economic theory in favour of free competition and minimal government regulation has prevailed in the literature. Within the new growth theories, developed since the 1980s, the supremacy of this position has not precluded the analysis of the government sector. Yet this literature has played down the analysis of the effects of changes in government deficits and debt on the inequality in income distribution. It has replaced, in representative agent models, the traditional concept of debt sustainability with the assumption that the present value of government debt must be equal to zero,1 pushing these models towards focussing on policies carried out with a balanced budget. Some works using overlapping generation models, however, have not followed this line and have reached the conclusion that an increase in government deficits and debt reduces the rate of growth, without examining, in any case, its effect on the inequality in income distribution.2 A greater interest in the connection between government intervention and distribution can be found in the Keynesian literature, which has recently seen an intense debate on how government policies carried out with an unbalanced budget can be introduced within the post Keynesian theory of growth and distribution.3 This debate has focussed on the validity of the ‘Pasinetti’ and ‘anti-Pasinetti’ theorems and of the ‘Cambridge equation’. In some cases, it has also examined the possibility of reconciling the...

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