nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2013‒10‒05
six papers chosen by
Karl Petrick
Western New England University

  1. "Wage and Profit-led Growth: The Limits to Neo-Kaleckian Models and a Kaldorian Proposal" By Esteban Perez Caldentey; Matias Vernengo
  2. "Fiscal Policy and Rebalancing in the Euro Area: A Critique of the German Debt Brake from a Post-Keynesian Perspective" By Eckhard Hein; Achim Truger
  3. Complexity Economics: A Different Framework for Economic Thought By W. Brian Arthur
  4. Affirmative Action: One Size Does Not Fit All By Krishna, Kala; Tarasov, Alexander
  5. The Poverty Effects of a “Fat-Tax” in Ireland By David Madden
  6. Macro Models: An App for Macroeconomic Models. User Manual 2.1 By Coppola, Gianluigi

  1. By: Esteban Perez Caldentey; Matias Vernengo
    Abstract: We argue that a fundamental difference between Post-Keynesian approaches to economic growth lies in their treatment of investment. Kaleckian-Robinsonian models postulate an investment function dependent on the accelerator and profitability. Some of these models rely on the importance of profitability, captured by the profit share, to make the case for profit-led growth. For their part, Kaldorian models place the emphasis on the accelerator. More important, investment is a derived demand; that is, it is ruled by the adjustment of capacity to exogenous demand, which, in turn, determines the normal level of capacity utilization. In our view, the Kaldorian approach is better equipped to deal with some of the issues relating income distribution to accumulation with effective demand in the long run. We develop a Kaldorian open-economy model to examine the conditions under which an increase in real wages can produce profit or wage-led growth, showing that the limit to a wage-led expansion is a binding external constraint. The role and limitations of wages as a determinant of growth are further examined through spectral techniques and cycle analysis for a subset of developed economies. The evidence indicates that real wages are positively related to growth, investment, and capacity utilization. It also highlights the role of finance in sustaining expansions, suggesting that debt-led growth should not be identified with profit-led growth.
    Keywords: Kaldorian and Kaleckian Models; Profit-, Wage-, and Debt-Led Growth; Investment; Derived Demand; External Constraint
    JEL: B50 E32 O40
    Date: 2013–09
  2. By: Eckhard Hein; Achim Truger
    Abstract: The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany.
    Keywords: Fiscal Policy; Rebalancing; Functional Income Distribution; Debt Brake; Germany; Euro Area
    JEL: E25 E61 E62 E64 E65 H62 H63
    Date: 2013–09
  3. By: W. Brian Arthur
    Abstract: This paper provides a logical framework for complexity economics. Complexity economics builds from the proposition that the economy is not necessarily in equilibrium: economic agents (firms, consumers, investors) constantly change their actions and strategies in response to the outcome they mutually create. This further changes the outcome, which requires them to adjust afresh. Agents thus live in a world where their beliefs and strategies are constantly being “tested” for survival within an outcome or “ecology” these beliefs and strategies together create. Economics has largely avoided this nonequilibrium view in the past, but if we allow it, we see patterns or phenomena not visible to equilibrium analysis. These emerge probabilistically, last for some time and dissipate, and they correspond to complex structures in other fields. We also see the economy not as something given and existing but forming from a constantly developing set of technological innovations, institutions, and arrangements that draw forth further innovations, institutions and arrangements. Complexity economics sees the economy as in motion, perpetually “computing” itself— perpetually constructing itself anew. Where equilibrium economics emphasizes order, determinacy, deduction, and stasis, complexity economics emphasizes contingency, indeterminacy, sense-making, and openness to change. In this framework time, in the sense of real historical time, becomes important, and a solution is no longer necessarily a set of mathematical conditions but a pattern, a set of emergent phenomena, a set of changes that may induce further changes, a set of existing entities creating novel entities. Equilibrium economics is a special case of nonequilibrium and hence complexity economics, therefore complexity economics is economics done in a more general way. It shows us an economy perpetually inventing itself, creating novel structures and possibilities for exploitation, and perpetually open to response.
    Date: 2013–03
  4. By: Krishna, Kala; Tarasov, Alexander
    Abstract: This paper identifies a new reason for giving preferences to the disadvantaged using a model of contests. There are two forces at work: the effort effect working against giving preferences and the selection e¤ect working for them. When education is costly and easy to obtain (as in the U.S.), the selection effect dominates. When education is heavily subsidized and limited in supply (as in India), preferences are welfare reducing. The model also shows that unequal treatment of identical agents can be welfare improving, providing insights into when the counterintuitive policy of rationing educational access to some subgroups is welfare improving.
    Keywords: contests; educational quotas; private benefits; social welfare
    JEL: D61 I23
    Date: 2013–09
  5. By: David Madden (University College Dublin)
    Abstract: To combat growing levels of obesity, health related taxes have been suggested with taxes on foods high in fat or sugar. Such taxes have been criticised on the basis of their regressivity and potentially adverse impact upon poverty. This paper analyses the effect of such taxes on a range of poverty measures and also examines the effect of a revenue-neutral tax subsidy mix with a tax on unhealthy food combined with a subsidy on more healthy food. Using Irish expenditure data, the results indicate that taxes on high fat/sugar goods on their own will be regressive but that a tax-subsidy combination can be broadly neutral with respect to poverty.
    Keywords: Poverty efficiency;consumption dominance
    Date: 2013–03–25
  6. By: Coppola, Gianluigi
    Abstract: Macro Models are a series of free Apps available in App Store, and they work with Ipads. Each App simulates a specific macroeconomic model and presents both the static and the dynamic results. The first five Apps developed and published are: the Income-Expenditure model in three versions (I, II and III), the IS-LM model and the Taylor’s rule (IS-MP model). The economic model of each single App and several examples on how it works are outlined in this paper.
    Keywords: Macroeconomics, Income-Expenditure model, IS-LM, Taylor’s rule, APP. 3
    JEL: E10 E17
    Date: 2013–09–10

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