Functional income distribution and aggregate demand in the Euro-area

Stockhammer, Engelbert ORCID: and Onaran, Özlem and Ederer, Stefan (2007) Functional income distribution and aggregate demand in the Euro-area. Department of Economics Working Paper Series, 102. Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business, Vienna.


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An increase in the wage share has contradictory effects on the subaggregates of aggregate demand. Private consumption expenditures ought to increase because wage incomes typically are associated with higher consumption propensities than capital incomes. Investment expenditures ought to be negatively affected because investment will positively depend on profits. Net exports will be negatively affected because an increase in the wage share corresponds to an increase in unit labor costs and thus a loss in competitiveness. Theoretically aggregate demand can therefore be either wage led or profit led depending on how these effects add up. The results will crucially depend on how open the economy is internationally. The paper estimates a Post-Kaleckian macro model incorporating these effects for the Euro area and finds that the Euro area is presently in a wage-led demand regime. Implications for wage policies are discussed. (author's abstract)

Item Type: Paper
Keywords: distribution / demand / investment / consumption / foreign trade / macroeconomics / Keynesian economics
Classification Codes: RVK QC 310 ; JEL E12, E20, E22, E25, E61
Divisions: Departments > Volkswirtschaft
Depositing User: Repository Administrator
Date Deposited: 15 Feb 2007 09:30
Last Modified: 31 Oct 2019 08:02


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