Income Distribution, Consumption Dynamics, and Financial Fragility: A Kaleckian Perspective

Income Distribution, Consumption Dynamics, and Financial Fragility: A Kaleckian Perspective | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Income Distribution, Consumption Dynamics, and Financial Fragility: A Kaleckian Perspective houssam boughabi This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8921360/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This paper develops and empirically evaluates a Kaleckian model of distributive conflict in which mark-up pricing generates a divergence between wages and prices, eroding workers’ real purchasing power and inducing debt-financed consumption. In contrast to neoclassical frameworks, prices are administratively set by firms under imperfect competition, while workers adjust to distributive losses through borrowing and the accumulation of bank deposits. The model for- malizes workers’ consumption behavior as a real, dynamic process, highlighting a martingale-like condition in which households smooth real consumption over time despite inflationary pressures arising from rising mark-ups. Using household-level panel data, the paper tests this martingale property by estimating a fixed-effects regression of real consumption on its lagged value and lagged financial resources. The results provide evidence that real consumption exhibits strong persistence, consistent with consumption smoothing, while debt plays a compensatory role in sustaining demand under declining wage shares, the analysis also shows that this mechanism is inherently unstable, as rising indebtedness eventu- ally leads to deleveraging, contraction in effective demand, and downward pressure on prices. The findings contribute to the Post-Keynesian literature by linking distributive conflict, household debt, offering new empirical insights into the dynamics of consumption and macroeconomic instability. JEL Classification. E12, E25, E31, E44, D33. Macroeconomics Kaleckian pricing Distributive conflict Debt-financed consumption Consumption smoothing Financial fragility Full Text Additional Declarations The authors declare no competing interests. Supplementary Files PythonModelCode.docx Python Model Code Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. 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In contrast to neoclassical frameworks, prices are administratively set by firms under imperfect competition, while workers adjust to distributive losses through borrowing and the accumulation of bank deposits. The model for- malizes workers’ consumption behavior as a real, dynamic process, highlighting a martingale-like condition in which households smooth real consumption over time despite inflationary pressures arising from rising mark-ups. Using household-level panel data, the paper tests this martingale property by estimating a fixed-effects regression of real consumption on its lagged value and lagged financial resources. 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