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A neo-kaleckian model is proposed to analyze the bidirectional relationship between growth and income distribution. To do this, the price equation of Kalecki (1971) is modified and the model of Bhaduri and Marglin (1990) is extended. If the growth is wage-led, then the income path is shown to be cyclical. In contrast, if it is profit-driven, it is sustained. In this last scenario, income is concentrated in profits because the profit rate is higher than the growth rate. Finally, it is argued that if the state redistributes income in a greater amount than the market concentrates it, wage-led growth can be sustained. [ABSTRACT FROM AUTHOR]

In a seminal paper on Marxian business cycle theory, Goodwin (1967) presented a model which assumed that a higher wage share leads to lower investment and thus a general economic slowdown. In contrast Kalecki (1971) was arguing that a higher wage share would have an expansionary effect because the consumption propensity out of wage income is higher than that out of profit income. Based on a general model that allows for wage-led as well as profit-led demand regimes, this paper estimates the effects of a change in the wage share on aggregate private domestic demand with quarterly data for 12 OECD countries.JEL classification: E11, E12, E20, E22, E25 [ABSTRACT FROM PUBLISHER]