Kyoto University,
Graduate School of Economics
Research Project Center Discussion Paper Series

On the Short-run Relationship between the Income
Distribution- and Finance-Growth Regimes

Hiroshi Nishi

Discussion Paper No. E-12-001

Research Project Center
Graduate School of Economics
Kyoto University
Yoshida-Hommachi, Sakyo-ku
Kyoto City, 606-8501, Japan

April 2012

On the Short-run Relationship between the Income Distributionand Finance-Growth Regimes
Hiroshi NISHI(Original version: April, 2012)
Faculty of Economics, Hannan University
5-4-33, Amami Higashi, Matsubara-shi, Osaka 580-8502, Japan
E-mail: nishi@hannan-u.ac.jp
JEL classification: E12, E22, O42, P24
Keywords: Wage- and Profit-led Growth, Debt-led and Debt-burdened Growth,
Post-Keynesian model
Abstract
This paper examines the short-run relationship between the income distributionand finance-growth regimes using a simple post-Keynesian demand-driven model.
While each mechanism of wage-led and profit-led growth has been revealed, its
relationship with debt-led and debt-burdened growth, and vice versa, is yet to
be clarified. This is because the argument on these growth regimes has beendeveloped separately. By constructing a simple post-Keynesian model that generates these regimes, this paper examines their relationship. It is shown that thegrowth regimes transform as the regime switching parameters in the IS balancechange. By way of theoretical analysis, this paper presents some important
implications for the diversity of economic growth—including the complementarity of growth regimes to shocks—that are in contrast to the implications of
the basic neo-classical model on income distribution and money. In addition,
by doing so, this paper also validates recent empirical results.

1 Introduction
Post-Keynesians have emphasized the role of income distribution for the determination of demand-led growth. In the old models à la Kaldor and Robinson, the full
utilization of capacities is assumed and an increase in profit rate stimulates economic
growth, while the wage share is restrained (Marglin (1984)). In contrast, original
Kaleckian models (or stagnationist models) stressed that an increase in wage sharestimulates economic growth, which is in sharp contrast with classical-Marxian models. Subsequent models explain that changes in income distribution have ambiguous
eﬀects on economic growth (Bhaduri and Marglin (1990); Blecker (2002); Bhaduri(2007)). Depending on the relative size of the parameters in the IS balance, thegrowth rate of an economy can either increase or fall with income distribution. If
profit share stimulates the economic growth rate, we refer to it as profit-led growth.
In contrast, if wage share stimulates the economic growth rate, we refer to it as wageled growth.
They also focus on the role of finance for economic growth and cycles. Alongwith the rapid development of the financial sector, the overall importance of debt, interest rate, and so on for income distribution, eﬀective demand, and economic growth
has risen considerably (Hein (2011)). One of the theoretical consequences is the examination of the growth mechanism of finance. The mechanism of debt-led growth(DLG) and debt-burdened growth (DBG) regimes has been revealed, by focusing
on business borrowing under certain financial accounts (Lavoie and Godley (2001);
Taylor (2004); Hein (2006); Hein (2007)). In the former, a bigger debt and a higher
interest rate will increase the economic growth rate, and this case is also called the
puzzling case. In the latter, a bigger debt and a higher interest rate will decrease theeconomic growth rate, and this case is also called the normal case. The formation ofthese growth regimes also depends on the values of the parameters in the IS balance.
Thus, the identification of the economic growth regime and its extension havebeen a focus of theoretical issues. However, while each mechanism of income
distribution- and finance-growth regimes has been revealed, the relationship between
the two regimes is yet to be conclusively proved.
This paper attempts to contribute to the short-run relationship between the income distribution- and finance-growth regimes for three reasons. First, I seek topresent a structure of economic growth within a simple but general post-Keynesianmodel. Second, I wish to capture the mechanisms of economic growth in terms ofboth income distribution and finance. In particular, the mechanisms of wage-led
growth (WLG) regime and profit-led growth (PLG) regime are explained as the income distribution-growth regime. In addition, the mechanism of DLG and DBG
1

regimes is explained as the finance-growth regime. Third, I want to present some
implications for existing literature from theoretical and empirical viewpoints.
By doing so, I particularly emphasize the synthesis of the income distributionand finance-growth regimes. While the mechanisms of economic growth have been
examined in terms of income distribution and financial factors, these mechanisms
are revealed separately. Basic Kaleckian models have focused principally on thegrowth and distribution. As such, it is not clear how WLG and PLG regimes areconcerned with the finance-growth regimes. The argument in Kaleckian models withdebt accumulation mainly concerns the mechanisms and stability of DLG and DBG
regimes. Consequently, it is not fully revealed how these growth regimes are compatible with the income distribution-growth regimes. A growth regime should be
examined from multiple perspectives, since economic growth is normally aﬀectedby not only the change in income distribution but also the accumulation of debt at
the same time, which is confirmed by post-Keynesian empirical literature. Hein and
Schoder (2011) confirm that the growth regimes of both the US and Germany havebeen debt-burdened in terms of finance, whereas Naastepad and Storm (2007) detectthat the regime of Germany has been wage-led and that of the US has been profitled. Nishi (2012) confirms by a time series analysis that the growth regime of theJapanese economy during the past 20 years has been profit-led and debt-burdened.
Therefore, it is not desirable to identify the growth regime of an economy only fromone side. Rather, in order to understand the macroeconomic performance of an economy in more detail, it is required to consider the growth regime from both sides.
The results obtained in this paper will enable us to better understand how the income
distribution- and finance-growth regimes are connected and ascertain the parameterby which the growth regime transforms from one factor to another.
The remainder of this paper is organized as follows. Section 2 briefly surveys
the theoretical development of the income distribution- and finance-growth regimes.
I then revisit the importance of formalizing growth regimes in a model in terms ofboth finance and distribution. Section 3 presents a simple growth model that explains
the mechanism of growth regimes. Section 4 explains the formation and transformation of economic growth regime by focusing on the regime switch parameters. Afterderiving the properties of each growth regime, I show some implications of the current model for the existing literature. Section 5 concludes the paper.

22 Income Distribution, Finance and Growth: A Brief
Survey of post-Keynesian Literature
One of the important issues in post-Keynesian economics is income distribution between wage and profit, and economic growth. Post-Keynesians have extended thetheory of demand-led growth and distribution on the basis of Robinson, Kaldor,
Pasinetti and Kalecki models. If an increase in wage (profit) share stimulates aggregate demand (in most cases, the capacity utilization rate), the demand formation
pattern is called stagnationist (exhilarationist). Similarly, when an increase in wage
share raises the growth rate of output, the growth regime is referred to as wage-led
growth. In contrast, when an increase in profit share raises the growth rate of output,
it is referred to as profit-led growth.
According to Lavoie (1992), these growth mechanisms have been initially examined by Del Monte (1975), then developed by Rowthorn (1981), Dutt (1984),
and Taylor (1985). With the classical consumption function, they use an investment function that depends on profit rate and capacity utilization, and reveal thatcapacity utilization and economic growth rate are stimulated by wage variables. In
contrast to such strong stagnationist results, Bhaduri and Marglin (1990) and Marglin and Bhaduri (1990) show that exhilarationist and PLG regimes are also possible
in a Kaleckian model. They do so by introducing a strongly positive response of theinvestment function to an increase in profit share instead of profit rate. After these researches, the theory of income distribution and economic growth has been extended
to the analysis of technological change (Dutt (2003)), structural change (You (1994)),
open economic issues (Blecker (2011)), comparisons with alternative models such as
neo-classical, neo-Keyneisan, and neo-Marxian (Dutt (2011)), and long-term issues(Lavoie (2010)). Useful surveys on growth and income distribution are provided by
Setterfield (2002), Setterfield (2010), and Hein and Stockhammer (2011).
The seminal paper of Bhaduri and Marglin (1990) stimulates empirical analysis.
Many use a general growth model that allows demand growth to be either wage-led
or profit-led, and apply it to each economy. These include Bowles and Boyer (1995),
Stockhammer and Onaran (2004), Barbosa-Filho and Taylor (2006), Naastepad andStorm (2007), and Hein and Vogel (2008). Although these studies confirm the existence of the WLG and PLG regimes in the economies considered, the results are notconclusive as they depend on the period and method employed.
In the context of the extension of the post-Keynesian model, Kaleckian economic
growth models with debt accumulation have recently been presented that emphasize
the financial side of an economy. An extension of the model to the financial side3

is required because of both theoretical and empirical reasons. Empirically, it is because the overall importance of financial factors for income distribution, aggregate
demand, and economic growth has risen considerably. That is, there has been an
increase in the importance of financialization. Regarding consumption, financialization induces wealth-based and debt-financed consumption. Regarding income distribution, financialization has been viewed to be conductive to declining wage shareand to increasing wage inequality (Hein (2011)). Concerning investment, increased
investment in financial assets with financialization may have a crowding out eﬀect
on real investment. It also undermines the real investment because of increased payments to financial markets in the form of dividends and stock buybacks by the firm
(Orhangazi (2008)). Theoretically, these extensions go with the development of a
Minskian model as many studies introduce Minskian insights on finance and capital accumulation. Using a macroeconomic model that incorporates firms’ finances,the mechanisms of DLG and DBG regimes have been revealed (Lavoie and Godley (2001); Taylor (2004); Hein (2006); Hein (2007)). Under the DLG regime, anincrease in debt or a rise in interest rate stimulates economic growth. On the contrary, an increase in debt or a rise in interest rate restrains economic growth underdebt-burdened growth regime.
The importance of growth, distribution, and finance lies in both theoretical andempirical aspects, which is in sharp contrast with basic neo-classical economics. The
theoretical importance of the post-Keynesian model of income distribution is that it
does not rely on the marginal productivity explanation of income distribution. Instead, it considers that income distribution is a result of class conflict among social
classes. Although the share of income distribution share is considered to be an exogenous variable in the current model, post-Keynesians have endogenized it by employing the conflict-claiming model for the purpose (Cassetti (2003); Sasaki (2011)).
The theoretical importance of finance for growth is that money and finance are notneutral for the real side of economy. The interest rate is not an adjustment variable
for the IS balance. Moreover, debt finance will aﬀect the growth and profit of firms,
as a change in debt and in interest rate aﬀects the income distribution and eﬀective
demand. Lastly, the empirical importance is that economic growth is not unique but
exhibits diversity. According to the literature cited above, economies may be either
wage-led or profit-led in terms of income distribution, and they may be either debtled or debt-burdened in terms of finance, which may change depending on the period.
The results of the empirical studies imply that some economies perform well undera certain economic growth regime, but others do not. In other words, it implies thatthe growth regime is neither unique nor optimum.

4

The current study focuses on the theoretical side of growth regimes. The next
section constructs a simple post-Keynesian model that generates wage-led, profitled, debt-led, and debt-burdened growth regimes. By doing so, it also presents a
combination of these growth regimes that matters for economic performance.

3 Model
3.1 Setup
The following is a list of the main notations used in this paper. X: output (total
income), X ∗ : potential output, K: capital stock, E: eﬀective employment level, 1 − π:wage share, π: profit share, X ∗ /K = ν: potential output-capital ratio (constant andset as unity for simplicity), u = X/K: output-capital ratio (eﬀective demand), r =πu: profit rate, S : total savings, I: investment demand, g: actual rate of capital
accumulation in the short-run, W: nominal wage, R: profit (net operating revenue),
i: nominal interest rate, λ: debt-capital ratio.
I assume an economy that is closed and has no government fiscal expenditure.
A single good that is used for both investment and consumption is produced using
labour and capital by firms, which are combined through a fixed coeﬃcient technology. For simplicity, I assume that there is no technological change in production.
Four classes—workers, firms, banks (including a central bank), and rentiers who
own the firms and supply funds to firms via banks—are assumed to exist in the economy. The main diﬀerence between firms and rentiers is that while the former produces, the latter indulges in financial businesses via banks. The existence of banks is
implicitly assumed because their activities are not explicitly formalized in the model.
The worker households provide labour and receive wage income, with the wage bill
being WE.
The firms receive net operating revenue R, which is the surplus over wages.
Hence, the functional distribution of income is given by
PX = WE + R(1)

where PX is the total income. It is assumed that income distribution remains constantunder the oligopolistic pricing equation which is a feature in a standard Kaleckian
model: P = (1 + z)WE/X, where z is the constant markup ratio. As for price dynamics, I assume that there is no change in the price level. In this case, the wage shareand profit share are obtained as constant ratios 1 − π = 1/(1 + z) and π = z/(1 + z),
respectively.
5I assume that the firms can make use of loans, which are financed by rentiers
via banks. It is also assumed that firms do not issue new shares except for once
when they start operating. These shares are owned by rentiers. With regard to thenominal interest rate i, it is assumed to be controlled via the base rate of interest by
the monetary policy under the so-called horizontalist regime (Moore (2001); Rochon(2001)). In this regime, the interest rate is an exogenous variable for the accumulation
process, whereas the quantities of credit and money are determined endogenously byeconomic activity.
The firms must therefore pay debt service iD on their debt stock, along with adividend to the rentiers in each period. I assume the dividend rate to be (1 − sF ), andthe firms’ retention rate to be sF ∈ [0, 1]. Hence, the firms’ net profit is (R − iD), andthe rentiers’ total income is (1 − sF )(R − iD) + iD. The three classes have diﬀerent
savings behaviours. The firms retain a constant fraction sF of their net profits, rentiers
save a constant fraction sC ∈ (0, 1) of their income, while workers spend all theirwage income. At the macroeconomic level, the total savings S is composed of the
profits retained by the firms and the savings from the rentiers’ income. Therefore,
the aggregate savings as a proposition of the capital stock is given by
S /K = (S C + S F )/K= sC [(1 − sF )(πu − iλ) + iλ] + sF (πu − iλ) = (∆ + sC )πu − ∆iλ,(2)where ∆ = sF (1 − sC ).
Post-Keynesians employ several types of investment functions. Charles (2008)
assumes that capital accumulation positively depends on the firms’ internal funds.
Lima and Meirelles (2007) set up an investment function that depends on the profit
rate and interest rate. Hein (2006) and Fujita and Sasaki (2011) use the Marglin andBhaduri type investment function incorporating the negative eﬀects of debt service.
The current study follows Hein (2006) and Fujita and Sasaki (2011), in that the model
can generate both the WLG and PLG growth regimes. Thus, the firms make an
investment plan I, which is given by the following desired investment function:g = I/K = α + βπ + γu − θiλ,(3)where α, β, γ, and θ are positive parameters, and g denotes the short-run capital
accumulation rate. α stands for the motivation to accumulate and might be aﬀectedby the firms’ animal spirits. Both the profit share π and the capacity utilization rateu stimulate capital accumulation, but a rise in debt service negatively aﬀects it. The
type of investment function must be carefully chosen, as the arguments easily aﬀect
the possibility of growth regimes. In addition to the theoretical necessity, I select6

the above investment function on the basis of empirical evidence. From empiricalanalysis, it is shown that the impacts of variables concerning the accelerator eﬀect(by the growth rate of real net domestic income), and of the profit share on capital
accumulation diﬀer (Hein and Schoder (2011)). In addition, the interest payments
also have a negative impact on capital accumulation (Ndikumana (1999)). Therefore,
the interest payments are separately included in this function.

3.2 Equilibrium
This paper particularly considers the property of the short-run equilibrium state. In
this period, disequilibrium in the goods market is adjusted by changes in the capacity
utilization rate under given capital and debt stocks. From eqs. (2) and (3), the shortrun equilibrium rate of capacity utilization is given byu∗ =α + βπ + (∆ − θ)iλ.
(∆ + sC )π − γ(4)For the stability of this equilibrium, I assume that (∆ + sC )π − γ > 0, which is
known as the Keynesian stability condition. I also assume that the numerator of eq.
(4) is positive, which will ensure a positive equilibrium value of capacity utilization.
By diﬀerentiating u∗ with respect to the profit share π, I obtain the conditions forboth the stagnationist and exhilarationist demand regimes. These conditions can be
distinguished on the basis of the following equation:∂u∗(∆ + sC )[α + (∆ − θ)iλ] + βγ=−.
∂π[(∆ + sC )π − γ]2(5)This equation shows that if the α, β, and γ are large, the stagnationist demand regime
will be established. On the contrary, when θ is large, the exhilarationist demand
regime will be established.
Similarly, by diﬀerentiating u∗ with respect to the debt ratio λ, I can obtain theconditions for both the debt-led and debt-burdened demand regimes. These conditions can be distinguished on the basis of the following equation:(∆ − θ)i∂u∗=.
∂λ(∆ + sC )π − γ(6)This calculation shows the importance of the diﬀerence between ∆ and θ. If θ islarger than ∆, the debt-burdened demand regime will be established. Following Fujita and Sasaki (2011), I name this the debt-burdened capacity utilization (DBCU)
regime. On the contrary, when ∆ is larger than ∆, the debt-led demand regime willbe established. I name this the debt-led capacity utilization (DLCU) regime. Finally,7the value of the interest rate reinforces these impacts. DBCU and DLCU play animportant role for the existence of a combination of growth regimes; this is shown in
the Appendix.
Below, I focus on the mechanism of economic growth in terms of income distribution and finance. By substituting eq. (4) in eq. (3), I obtain the short-run equilibrium
rate of capital accumulation g∗ :g∗ =(α + βπ)(∆ + sC )π + [∆γ − θπ(∆ + sC )]iλ.
(∆ + sC )π − γ(7)In the short-run steady state, the capacity utilization rate u∗ = X/K remains constant. Therefore, the output growth rate is equal to the capital accumulation growthrate, g∗ . On the basis of eq. (7), I will derive the income distribution- and financegrowth regimes.
First, I examine the impacts of a change in the income distribution share on theeconomic growth rate. Diﬀerentiating g∗ with respect to π yields{}∂g∗(∆ + sC )
2
=
βπ
(∆
+
s
)
−
γ[α
+
2βπ
+
(∆
−
θ)iλ]
.
C
∂π
[(∆ + sC )π − γ]2(8)Since I assumed that the numerator of eq. (4) is positive, [α + 2βπ + (∆ − θ)iλ] is also
positive. In eq. (8), since (∆ + sC ) is positive, the income distribution-growth regimes
can be distinguished on the basis of the sign of the terms in the brace.
Second, I investigate the eﬀects of a change in the debt-capital ratio on the economic growth rate. Diﬀerentiating g∗ with respect to λ gives∂g∗i=[γ∆ − θ(∆ + sC )π].
∂λ(∆ + sC )π − γ(9)Since the denominator of eq. (9) is positive, the finance-growth regimes can be distinguished on the basis of the sign of the terms in the bracket.
Finally, let us focus on the relationship between debt/demand formation andgrowth. In this model, while DLCU leads to both DLG and DBG, DBCU leads
only to DBG. By arranging eq. (9), we haveγ∆ − θπ(∆ + sC ) =γ∆ − (θγ − θγ) − θπ(∆ + sC )=γ(∆ − θ) + θ[γ − π(∆ + sC )],where γ − π(∆ + sC ) is always negative, by the Keynesian stability condition. Therefore, if the economy is DBCU (i.e., ∆ − θ < 0), the growth regime is necessarily debtburdened. On the other hand, if the economy is DLCU (i.e., ∆ − θ > 0), the growth
regime may either debt-burdened or debt-led depending on the condition (eqs. (12)and (13) shown in the next section).
8

4 Parametrical Configuration for Economic Growth
Regimes
4.1 On the Regime Switching Parameters
As shown in the previous section, whether the economic growth regime is wage-led
or profit-led depends on the parameters in eq. (8). More precisely, the following
inequalities determine the growth regime of income distribution.
• If the following inequality is satisfiedγ<βπ2 (∆ + sC ),α + 2βπ + (∆ − θ)iλ(10)

then the PLG regime will be established.
• On the contrary, if the following inequality is satisfiedγ>βπ2 (∆ + sC ),α + 2βπ + (∆ − θ)iλ(11)

then the WLG regime will be established.
As for the finance-growth regime, whether the economic growth regime is debtled or debt-burdened depends on the parameters in eq. (9). More precisely, thefollowing inequalities determine the finance-growth regime.
• If the following inequality is satisfiedγ<θπ(∆ + sC )
,
∆

(12)

then the DBG regime will be established.
• On the contrary, if the following inequality is satisfiedγ>θπ(∆ + sC )
,
∆

(13)

then the DLG regime will be established. The same conditions are true for the
DLG and DBG regimes in terms of changes in the interest rate.
From eqs. (10)-(13), it is now clear that the values of parameters γ, ∆, θ, and π
relate to the determination of the income distribution- and finance-growth regimes. γ
represents the accelerator eﬀect on investment, ∆ is the product of the firms’ retention
rate and the rentiers’ propensity to consumption. θ measures the depression eﬀect of
9the interest payments, and π is the initial value of the profit share. That is, changes inthese parameters may result in the transformation from one economic growth regime
to another. Therefore, I call these parameters the regime switching parameters.
I will illustrate the conditions for the economic growth regimes on the basis of γand ∆, as these parameters show the formalization of the growth regimes in a clear
manner. By taking ∆ for the horizontal axis and γ for the vertical axis, I depict therelationship between the magnitudes of these parameters and the income distributionand finance-growth regimes. I define the functions F(∆) and G(∆) on the basis ofinequalities (10)-(13), in order to illustrate the regime formation conditions in the
figure:βπ2 (∆ + sC ),F(∆) =
α + 2βπ + (∆ − θ)iλ(14)θπ(∆ + sC )
.
∆

(15)

G(∆) =It should be noted that ∆ is composed of sF and sC . As sC concerns other terms
in equations (14) and (15), I consider the changes in ∆ given a constant value of sC .
In this case, the maximum and minimum values of ∆ are 1 − sC and 0, respectively.
The locus of F(∆) is monotonically downward sloping in this domain, and the miniβπ2
sC βπ2
mum and maximum values of F(∆) areand,
α + 2βπ + (1 − sC − θ)iλα + 2βπ − θiλrespectively.1
Similarly, the locus of G(∆) is also monotonically downward sloping in this doθπmain. The limit and minimum value of G(∆) are lim G(∆) = ∞ and, respec∆→0
1 − sC
tively.

4.2 On the Properties of the Income Distribution-Growth Regimes
In this short-run model, the type of growth regime that will appear depends on chanceas the regime switching parameters are all exogenous. If γ is relatively large and ∆1

By diﬀerentiating F(∆) with respect to ∆, I get
dF(∆) βπ2 (α + 2βπ − (θ + sC )iλ)=.
d∆[α + 2βπ + (∆ − θ)iλ]2

I assume that the numerator of this equation is negative, which is necessary to obtain an economicallymeaningful solution. For example, if the slope of F(∆) is not negative, even when the firms’ retention
rate rises, it results in a profit-led economy although the aggregate consumption from profit decreases
in this case. This contrasts with the intuitive economic explanation. I will examine this issue in moredetail in the next section.

10

is suﬃciently large, the WLG regime will be established. In contrast, when γ isrelatively small and ∆ is suﬃciently small, the PLG regime will be generated.
γ, F(∆)

F(0)
WLG
PLG
F(1 − sC )

F(∆)

0

(1 − sC )∆Figure 1: Conditions for the WLG and PLG regimes
βπ (∆+sC )sC βπ
Note: The locus is depicted by F(∆) = α+2βπ+(∆−θ)iλ. The value of F(0) is F(0) = α+2βπ−θiλ
, and
2

2

βπ
that of F(1 − sC ) is F(1 − sC ) = α+2βπ+(1−s.
C −θ)iλ2Figure 1 presents the income distribution-growth regimes. For γ > F(∆), theeconomic growth is wage-led, while it is profit-led for γ < F(∆). It is only whenγ = F(∆) that economic growth is independent of income distribution.
It is important to investigate why the income distribution-growth regime particularly depends on the values of γ and ∆. As is defined in eq. (3), γ represents theaccelerator eﬀect on investment. By this term, changes in consumption demand are
led to aggregate demand. On the other hand, given the propensity to consumption ofrentiers 1 − sC , ∆ changes according to the firms’ retention rate.
The parametrical configuration indicates that wage-led growth is more likely if
firms retain more (i.e., when sF is large). Why is this so? Remark that firms distributea fraction (1 − sF ) of their net profit income to rentiers, and retain the rest. Thus, they
are not an actor of consumption. In contrast, the rentiers spend a fraction (1 − sC ) of
their financial income that is distributed from the net profit by (1 − sF ). Therefore,
the firms’ propensity to consume is always zero, whereas an increase in the financial
income distributed from the net profit income stimulates rentiers’ consumption by(1 − sF )(1 − sC ). On the other hand, a unit decrease in the wage share (increasein the profit share) changes the workers’ consumption by −1, as their propensity toconsume is unity. Therefore, a unit increase in the profit share changes aggregate11consumption by −1 + (1 − sF )(1 − sC ) = −sF (1 − sC ) − sC < 0. Therefore, an increasein profit share necessarily decreases aggregate consumption. Hence, as firms retain
more (i.e., sF increases), demand formation by way of an increase in profit becomesdiﬃcult. This is why increasing ∆ through a change in sF yields the WLG regime.
Moreover, if the wage share rises when ∆ is large, the workers’ consumption demandrises as well. Then, the aggregate demand is stimulated by γ through the accelerator
eﬀect. Thus, wage-led growth is enhanced by a combination of large ∆ and large γ.

4.3 On the Properties of the Finance-Growth Regimes
The model also generates finance-growth regimes, i.e., debt-led and debt-burdened
growth. The growth regime that appears also depends on chance, as the regime
switching parameters are all exogenous. Figure 2 presents these finance-growth
regimes. Given a value of γ that is larger than G(1 − sC ), the DLG regime tends
to be established, as the value of ∆ increases. In contrast, given a value of γ, asmaller ∆ is likely to generate debt-burdened growth. it is only when γ = G(∆) issatisfied that the monetary and financial side of the economy may be neutral for the
economic growth.
γ, G(∆)

G(∆)

DLG
DBG
G(1 − sC )(1 − sC )0∆

Figure 2: Conditions for the DLG and DBG regimes
C)
Note: The locus is depicted by G(∆) = θπ(∆+s. The limit of G(∆) in case ∆ is close to zero is∆θπ.
lim∆→0 = ∞, and the minimum value of G(1 − sC ) is G(1 − sC ) = 1−sC

It is also important to investigate the principle of the finance-growth regimes on
the basis of the changes in γ and ∆. Figure 2 shows that debt-led growth is more as
the firms’ retention increases. This mechanism can be explained in a similar manner12

to demand formation in terms of income distribution. The consumption of workers
is independent of the debt ratio. If the debt ratio rises by one unit, it decreases the
distribution of dividends by the firms by (1 − sF )i and raises the rentiers’ received
interest income by i. Therefore, one unit of increase in the debt ratio changes therentiers’ financial incomes by [−(1 − sF ) + 1]i, which is the total of the changes in
dividends and received interest. Because of this change in financial incomes, the rentiers’ consumption increases by (1− sC )[−(1− sF )+1]i = sF (1− sC )i. The total change
in consumption by a one-unit increase in the debt ratio is therefore positive. GivensC , an increase in sF reinforces the magnitude of consumption expansion in the caseof a rise in debt, which stimulates economic growth. Therefore, when the retention
rate is large, an increase in the debt ratio will raise aggregate demand through therentiers’ consumption. This is the mechanism wherein an increase in ∆ through achange in sF leads to the DLG regime.
Moreover, a large γ will support this demand formation pattern. An increase in
consumption by rentiers stimulates investment demand, and thus, aggregate demandthrough the accelerator eﬀect. Thus, debt-led growth is enhanced by a combinationof large ∆ and γ.
Other variables change the position of the locus. In particular, a rise in θ expands
the debt-burdened areas given a value of ∆. It is easy to understand why such achange occurs. According to the investment function (3), θ represents the negative
impact of increasing debt service. A rise in this value means that investment is restrained by an increase in interest payments. Even if the consumption accelerator
eﬀect through a rise in debt variables is eﬀective, it may not be suﬃcient to oﬀset thenegative impact of interest payments on the investment demand. Therefore, a rise inθ tends to expand the debt-burdened area while reducing the debt-led area.

4.4 On the Possibility of a Combination of Economic Growth
Regimes
If the focus of the study is on one side of the growth regime as is the case for most existing literature, it will be suﬃcient to study whether the Keynesian stability condition
and the condition for the growth regime are compatible. However, as I investigate
both types of growth regimes, I have to check if there exist parameters that satisfy theKeynesian stability condition, and discriminations for the income distribution- andfinance-growth regimes. Such an examination concerns the possibility of a combination of growth regimes. I leave the proof concerning the existence of these regimes
to the Appendix.
Using the results obtained by this exercise, I depict the possible areas for these13economic growth regimes in figures. Four types of combinations of growth regimes
are theoretically possible. These are as follows: (1) WLG and DBG regimes, (2)WLG and DLG regimes, (3) PLG and DLG regimes, and (4) PLG and DBG regimes.
However, there is another case in which three types of growth regimes exist. These
are as follows: (1) WLG and DBG regimes, (2) WLG and DLG regimes, and (3)PLG and DBG regimes.
First, I consider the case where four types of growth regimes exist. In this case,the two loci may intersect once in the domain. This is depicted in Figure 3, and ismathematically formalized as follows. For ∆ ∈ (0, 1 − sC ], the following function isset:J(∆) = G(∆) − F(∆).

(16)

For this function, if the following assumption is satisfied, then the curves G(∆) andF(∆) intersect once: lim J(0) > 0 and J(1 − sC ) < 0. In this case, there exists ∆∗ ∈∆→0
(0, 1 − sC ] such that F(∆∗ ) = G(∆∗ ). Moreover, at ∆ = ∆∗ , economic growth isindependent of both income distribution and debt accumulation.
γ

(1)
(2)

(4)

F(∆)
(3)
G(∆)

0

(1 − sC )∆∗∆Figure 3: Four types of growth regimes (Case 1)
Note: (1) WLG and DBG regimes; (2) WLG and DLG regimes; (3) PLG and DLG regimes; and(4) PLG and DBG regimes. The frontiers are not included.

The other case is where the two loci never intersect in the domain. For functionJ(∆), if the following assumption is satisfied, then the curves G(∆) and F(∆) neverintersect in the domain: lim J(0) > 0 and J(1 − sC ) > 0. This condition is more likely∆→0
to be satisfied when θ is large. This case is depicted in Figure 4 where the combination of the PLG and DLG regimes disappears. The underlying reasoning is simple.
14

As the investment function (3) implies, θ represents the negative impact of increasing
debt service on investment demand. A rise in this value means that demand formation through a rise in interest payments becomes more diﬃcult, given an accelerator
eﬀect. Therefore, for a large θ, the debt-led growth area is reduced.
γ

(2)
(1)

G(∆)

(3)

F(∆)

(1 − sC )0∆

Figure 4: Three types of growth regimes (Case 2)
Note: (1) WLG and DBG regimes; (2) WLG and DLG regimes; and (3) PLG and DBG regimes.
The frontiers are not included.

Let us consider the properties of each economic growth regime in detail. If γ and∆ remain in area (1) in Figure 3, the economy is wage-led and debt-burdened. This
growth regime implies that an increase in income distribution favourable for workers
stimulates their consumption, which has a larger eﬀect for eﬀective demand growththan a decrease in investment demand due to a decrease in profit share. As a result,
the WLG regime is established. On the other hand, while a rise in debt negatively
aﬀects the firms’ investment demand, it increases the rentiers’ consumption throughtheir financial income. As the eﬀect of the former is larger than the latter, the DBG
regime is obtained.
The opposite of area (1) is the economy that is profit-led and debt-led. This
growth regime is established when γ and ∆ remain in area (3) in Figure 3. This
growth regime implies that an increase in income distribution favourable for workers stimulates their consumption, which has a smaller eﬀect for eﬀective demand
growth than a decrease in investment demand due to a decrease in profit share. As
a result, the PLG regime is established. On the other hand, while a rise in debt negatively aﬀects the firms’ investment demand, it considerably increases the rentiers’
15

consumption through their financial income. In this regime, as the eﬀect of the latteris larger than the former, the DLG regime is obtained.
When γ and ∆ remain in area (2), the economy is wage-led and debt-led. In thiscase, an increase in income distribution for workers (a large wage share) and rentiers(a large debt ratio) increases the economic growth rate. As a decrease in profit shareand a rise in debt ratio principally restrain investment demand, these growth regimes
are generated through the large increase in consumption, which is induced by thechanges in real and financial income distribution.
The opposite of area (2) is the case in which γ and ∆ remain in area (4). In thisarea, the economy is profit-led and debt-burdened. In this case, a change in income
distribution favourable for the profit earners (a small wage share) will increase economic growth, whereas an income distribution favourable for the rentiers (a large
debt ratio) will restrain economic growth. An increase in profit share stimulates therentiers’ consumption and the firms’ investment, which expands aggregate demand.
From the financial side, because a large debt ratio restrains investment demand, thisgrowth regime is established. In other words, the rentiers’ consumption through arise in debt ratio is not enough to oﬀset the decrease in investment demand.

4.5 Implications for Existing LiteratureThus far, I have derived the mechanisms for the growth regimes. These growth
regimes are well-known in the existing literature. Therefore, this section presents
the contributions of this paper in comparison to the existing literature from the theoretical and empirical viewpoints. Even though my modelling strategy is just one
possible way of integrating these strands in a more complete manner (as there areother ways of doing so, especially depending on the form of the IS function), I believe that the results obtained in the current study have five implications. Althoughsome of these have been indicated in the preceding literature, the current model can
explain them in a more comprehensive manner.
First, as I referred to earlier, a comprehensive analysis of the income distributionand finance-growth regimes has not been presented. Rather, these have been separately examined. Bhaduri and Marglin (1990), Blecker (2002), and Bhaduri (2007)
give parametrical zones of cooperation and conflict regimes, but they do not consider
the financial side of the economy. On the other hand, Taylor (2004), Hein (2006),
and Hein (2007) present the conditions for the DLG and DBG regimes. However,
it is not clear how these finance-growth regimes are related to the WLG and PLG
regimes. In contrast to these analyses, this paper presents explicit models both economic regimes. By doing so, the current study reveals that four types of economic
16

growth regimes can coexist.
The second is that the economic growth path traces diﬀerent trajectories. Given
the locus of G(∆) and F(∆), the values of γ and ∆ determine the types of economic
growth regimes. However, as these variables are exogenous to the model, the typeof economic growth regime that will appear is not deterministic. For instance, If theparametrical configuration of an economy results in the WLG and DBG regimes, anincrease in the wage share and a reduction in the debt ratio will raise the economic
growth rate. However, if an economy has the PLG and DLG regimes, such shocks
will lead to economic stagnation. Thus, the economic growth path can show diﬀerent
trajectories to the same shocks. This is in sharp contrast to the standard Ramsey typeneo-classical economic growth model in which the economic growth path always
traces a unique saddle path to the steady state, regardless of the type of shock.
The third implication is derived from the second one. By way of theoreticalexamination, the current study insists on the condition for the complementarity ofgrowth regimes. Let me illustrate the importance of the complementarity of economic growth regimes. If an economy is profit-led and experiences a profit squeeze,
the economy will stagnate from the real side. Moreover, if the economy is debtburdened, a rise in debt may restrain eﬀective demand and the economy will shrink
further. On the contrary, another possibility is that when an economy is wage-led
and experiences an increase in wage share, the economy will expand because of thewage-led demand formation. In addition, if the economy is debt-led, a rise in debt
will reinforce eﬀective demand formation and the economy will expand further. In
the first case, the two economic growth regimes do not have complementarity withregard to distributional and financial shocks, whereas in the latter case, the two economic growth regimes are complementary. In other words, the model suggests that
economic performance is not a result of a unique shock, but of a hybrid shock. Needless to say, other combinations of economic growth regimes and shocks can also be
explained.
Fourth, the Keynesian theory of eﬀective demand is interpreted in terms of bothincome distribution and finance. That is, income distribution is not merely a kindof price that plays the role of resource allocation, but aﬀects eﬀective demand. As
explained above, a change in income distribution will aﬀect economic growth depending on the regime. When economic growth rises, employment will also expandin accordance with growth. This result is also in sharp contrast with that obtainedin the standard neo-classical economics. The neo-classical economics claims thata high wage will be harmful for unemployment. However, in the current model,
for example, under wage-led growth, wage restraining is not necessarily eﬀective

17

for stimulating economic growth or decreasing the unemployment rate. In addition, money and financial factors are not neutral for the real side of the economy,
but positively or negatively aﬀect aggregate demand. As changes in debt or interest rate aﬀect demand and growth, the real side of the economy is not independentof the financial factors. Such implications, too, are in sharp contrast with the standard neo-classical economics that involves the neutrality of money and loanable fundtheory. As for the current model, the case—wherein money is neutral, and wage increases discourage employment—can be obtained only in a special locus in which
S = {(γ, ∆) ∈ R2++ |γ = G(∆), ∆∗ < ∆ ≤ (1 − sC )}.
Since Bhaduri and Marglin (1990), a number of empirical studies on growth anddistribution have been presented. Recently, the reality of debt and growth has also
been examined. The results obtained above enable us to understand the validity ofthe empirical facts on the basis of a theoretical foundation. For instance, Hein and
Schoder (2011) show that the US and German economies have been in debt-burdened
growth (normal regime), on the basis of an extended Marglin and Bhaduri type investment function. Nishi (2012) explains using structural VAR models that the Japanese
economy has been profit-led and debt-burdened. As for income-distribution and economic growth, Naastepad and Storm (2007), Hein and Vogel (2008), and Stockhammer and Onaran (2004) show that some countries have traced wage-led growth paths
and others have traced profit-led growth paths. The theoretical approach of the current study complements these empirical results by showing that such combinations of
economic growth regimes are in fact plausible. In sum, the diversity of the economic
growth regimes is theoretically and empirically possible.
These implications also give another perspective for the traditional post-Keynesian
income distribution policy. In many cases, wage restraining does not impede economic growth under the WLG regime, while it may not be eﬀective under the PLG
regime. However, an investigation for both income distribution and finance yields
another possibility. Even if the growth regime is profit-led, the depression eﬀect ofwage restraining for the economic growth may be partially oﬀset by the financialside. If an economy is both debt-led and profit-led, stagnation due to an increase inwage can be avoided by stimulating debt accumulation. On the contrary, if an economy is debt-burdened and profit-led, the same stagnation can be avoided by reducing
debt accumulation. Thus, there is still room for a wage increase, even if the economic
growth is profit-led. Of course, it should be noted that if the type of financial shock
is contrary to the finance-growth regime, the macroeconomic performance will deteriorate further. The current model incorporating both distribution and finance gives
a wider perspective for the economic growth mechanism and income distribution18

policy.

5 Conclusion
Post-Keynesians are interested in distributional issues not only for their own sake,but also for understanding the interaction between growth and income distribution.
They have also emphasized the role of money and finance for economic growth, asthese are not neutral for the real side of the economy. However, there is no study
that investigates a general class of parameters that establish the coexistence of theincome distribution- and finance-growth regimes. While many preceding studies
have investigated which regime is obtained under what circumstances, a combinationof both regimes has seldom been examined. Taking these facts into consideration,
this paper attempts to provide such a comprehensive treatment of growth regimes
within a simple post-Keynesian modelling framework.
The economic growth regime changes according to parameters γ (accelerator effect) and ∆ (firms’ retention ratio and rentiers’ propensity to consume), which I referred to as the regime switching parameters. If these values change, an economic
growth regime transforms into another. By identifying and synthesizing growth
regimes, I presented five implications for the existing literature. (i) Economic growth
can be explained in terms of both income distribution and finance. (ii) Economic
growth shows diverse performance even to the same shocks. (iii) The macroeconomic performance should thus be explained by paying attention to the complementarity to the shocks. (iv) Unlike the basic neo-classical theory, income distribution
and money and finance are not neutral for real economic growth. (v) Recent empirical results that show wage-led, profit-led, debt-led, and debt-burdened growth patterns are not obtained ad hoc, but these can be explained by a theoretically sounded
foundation.
The attempt in the current study is also important for the argument on the effectiveness of economic policy. It suggests that even if an economy is profit-led,
a policy aiming to increase wage will still be valid. When the economy is debtburdened, the negative eﬀect from a wage increase can be oﬀset through an easy
monetary policy, such as by reducing the interest rate. In such a combination of
growth regimes, however, a tight monetary policy will further deteriorate economic
performance. Therefore, a regime analysis that captures both income distribution andfinance is important when considering economic policy choice.
Finally, the limitations of the model presented in this paper should be made clear.
The time span of the model is restricted within the so-called short-run. The time
19

span is defined, depending on the adjustment of the variables. Although diﬀerent
authors have diﬀerent modellings, among many post-Keynesian models, the shortrun is considered to be the case where income distribution, debt, and capital stock
are constant, and the GDP gap is adjusted by the capacity utilization rate (Rowthorn(1981); Dutt (1990)). The long-run period refers to a period when both debt andcapital stock change in many cases. Recent models consider the long-run period,
particularly, as a case in which the capacity utilization rate is adjusted to a desired
or normal rate, and show that Kaleckian properties such as wage-led growth andparadox of thrift still hold (Lavoie (1995); Lavoie (2010)).2 The model in the current
study is short-run. In this sense, it is not a fully fledged model.
However, the current provides a prototype model of growth, distribution, and finance, on which many extensions can be established. For example, the model can be
modified so as to endogenize the income distribution share (Cassetti (2003); Sasaki(2011)). In addition, it can be employed for the long-run analysis of debt accumulation and growth (Hein (2006); Hein (2007)). In this sense, the current model provides
a foundation for the post-Keynesian analysis of both growth regimes, income distribution, and finance. Last but not the least, one of the important issues in doing so
is the redefining of the concept of growth regimes. As Nikiforos and Foley (2012)indicate, the impact of a change in income distribution is not monotonic both theoretically and empirically for economic growth, which results in multiple equilibria.
Moreover, the existence of multiple equilibria means that the same shock does notalways lead to the expected result predicted by the demand regime. The same might
be true for the finance-growth models. Now that we have almost entirely theoretically revealed the monotonic impact of income distribution and finance on economic
growth, further investigation into more complex interactions among these variables
is required. I hope that the current model will provide useful foundations for further research, as there exist few works on post-Keynesian economic growth, income
distribution, and finance.

Appendix
Existence of Four Regimes I prove the coexistence of the finance- and income
distribution-growth regimes. In order to do so, preliminary examinations for the
relationships among F(∆), G(∆), and Keynesian stability condition are necessary. In
2This argument originates from the criticisms of the classical and Marxian models that consider
the rate of capacity utilization to converge to an exogenously given rate of capacity utilization in thelong-run.

20

the following examinations, the DLCU and DBCU regimes play an important role in
the possibility of several regimes. Let us remark that the value of γ is independentof these functions. Therefore, γ can be chosen without aﬀecting F(∆), G(∆), and(∆ + sC )π.
(A) Let us consider the following equation:
F(∆) − G(∆) ==βπ2 (∆ + sC ) θπ(∆ + sC )−βπ + Nu∆]π(∆ + sC ) [βπ(∆ − θ) − Nu θ ,∆(βπ + Nu )(17)

where Nu = α+βπ+(∆−θ)iλ > 0 which is the numerator in eq. (4). Thus, taking
the result in eq. (6) into consideration, the following results are obtained:(A1) If an economy has the DLCU regime, then ∆ − θ > 0. Therefore, bothF(∆) > G(∆) and F(∆) < G(∆) are possible. The former is more likely tobe established for a small θ. and the latter is more likely to be establishedby a large value of θ.
(A2) On the contrary, if an economy has the DBCU regime, then ∆ − θ < 0.
Therefore, only F(∆) < G(∆) is possible.
(B) Let us now consider the following equation:
F(∆) − (∆ + sC )π =βπ2 (∆ + sC )− (∆ + sC )πβπ + Nu=−π(∆ + sC )Nu .
(βπ + Nu )(18)

Given the above equation, we get that F(∆) < (∆ + sC )π always holds.
(C) Finally, the relationship between G(∆) and (∆ + sC )π is examined:θπ(∆ + sC )− (∆ + sC )π∆θ(∆ + sC )(θ − ∆).
=
θG(∆) − (∆ + sC )π =(19)

Again, taking the result in eq. (6) into consideration, the following results are
obtained:(C1) If an economy has the DLCU regime, then ∆ − θ > 0. Therefore, onlyG(∆) < (∆ + sC )π is possible.
21

(C2) On the contrary, if an economy has the DBCU regime, then ∆ − θ < 0.
Therefore, only (∆ + sC )π < G(∆) is possible. Thus, this inequality fully
corresponds to the DLCU and DBCU regimes. In this regard, DBCU
never leads to DLG. Therefore, if an economy is debt-led, G(∆) < (∆ +sC )π always hold.
By using these conditions, I will present the conditions for the coexistence of thefinance- and income distribution-growth regimes. To simplify the discussion, only
the relationships that satisfy condition (B) are presented below.
(1) WLG and DBG For this regime to exist, the following formal conditions are
candidates. For ∆ < ∆∗ ,F(∆) < γ < (∆ + sC )π < G(∆),(20)

F(∆) < γ < G(∆) < (∆ + sC )π.

(21)

First, I consider eq. (20). Condition (A) indicates that F(∆) < G(∆) is possible
if an economy has the DLCU regime and θ is large, or if an economy has the DBCU
regime. From condition (B), F(∆) < (∆ + sC )π is always possible. Finally, condition(C) indicates that (∆+ sC )π < G(∆) is also possible only if an economy has the DLCU
regime.
Second, I examine eq. (21). I have proven that condition (A) indicates that
F(∆) < G(∆) is possible if an economy has the DLCU regime and θ is large, or if an
economy has the DBCU regime. From condition (B), F(∆) < (∆ + sC )π is always
possible. Finally, condition (C) indicates that G(∆) < (∆ + sC )π is also possible only
if an economy has the DLCU regime.
γ is independent of these functions and terms. Therefore, by choosing an appropriate γ, the above inequalities are possible. Hence, these two cases give that
the WLG and DBG regime can be established regardless of the DLCU and DBCU
regimes.
(2) WLG and DLG For this regime to exist, the following formal conditions are
candidates. For this regime to be the case, the following formal conditions are candidate. First, for ∆ < ∆∗ ,F(∆) < G(∆) < γ < (∆ + sC )π.

(22)

Condition (A) indicates that F(∆) < G(∆) is possible if an economy has the DLCU
regime and θ is large, or if an economy has the DBCU regime. Condition (B) yields
22

that F(∆) < (∆ + sC )π is always satisfied. Finally, condition (C) indicates that
G(∆) < (∆ + sC )π is also possible only if an economy has the DLCU regime, whichis compatible only with the DLCU case in condition (A).
Second, for ∆∗ < ∆,G(∆) < F(∆) < γ < (∆ + sC )π.

(23)

Here, condition (A) indicates that G(∆) < F(∆) is possible if an economy has the
DLCU regime and θ is small. Condition (B) yields that F(∆) < (∆ + sC )π is always
satisfied. Finally, condition (C) indicates that G(∆) < (∆ + sC )π is also possible only
if an economy has the DLCU regime, which is compatible only with the DLCU casein condition (A).
Therefore, for an appropriate γ, inequalities (22) and (23) are possible. Hence,
we get that this regime can be established only under the DLCU demand regime.
(3) PLG and DLG For this regime to exist, the following formal conditions are
candidates. For ∆ > ∆∗ ,G(∆) < γ < F(∆) < (∆ + sC )π.

(24)

With regard to eq. (24), I have proven that condition (A) indicates G(∆) < F(∆)
is possible if an economy has the DLCU regime and θ is small. Condition (B)yields that F(∆) < (∆ + sC )π is always satisfied. Finally, condition (C) indicatesthat G(∆) < (∆ + sC )π is also possible only if an economy has the DLCU regime,
which is compatible with condition (A).
By choosing an appropriate γ, inequality (24) is possible. Hence, we get that thisregime can be established only under the DLCU demand regime.
(4) PLG and DBG For this regime to exist, the following formal conditions are
candidates. First, for ∆ < ∆∗ ,γ < F(∆) < (∆ + sC )π < G(∆),(25)

γ < F(∆) < G(∆) < (∆ + sC )π.

(26)

For inequality (25), condition (A) indicates that F(∆) < G(∆) is possible if an
economy has the DLCU regime and θ is large, or if an economy has the DBCU
regime. Condition (B) yields that F(∆) < (∆ + sC )π is always satisfied. Finally,
condition (C) indicates that (∆ + sC )π < G(∆) is also possible only if an economy has
the DBCU regime, which is compatible only with the DBCU case in condition (A).
23With regard to inequality (26), condition (A) indicates that F(∆) < G(∆) is possible if an economy has the DLCU regime and θ is large, or if an economy has
the DBCU regime. Condition (B) yields that F(∆) < (∆ + sC )π is always satisfied.
Finally, condition (C) indicates that (∆ + sC )π > G(∆) is also possible only if an
economy has the DLCU regime, which is compatible only with the DLCU case incondition (A).
Second, for ∆∗ < ∆,γ < G(∆) < F(∆) < (∆ + sC )π.

(27)

With regard to eq. (27), the condition (A) indicates that G(∆) < F(∆) is possible if
an economy has the DLCU regime and θ is small. Condition (B) yields that F(∆) <(∆ + sC )π is always satisfied. Finally, condition (C) indicates that G(∆) < (∆ + sC )πis also possible only if an economy has the DLCU regime, which is compatible onlywith the DLCU case in condition (A).
Therefore, for an appropriate γ, inequalities (25)-(27) are possible. Hence, we
get that this regime can be established if for an economy, ∆ < ∆∗ and the DLCU
or the DBCU demand regime is in place, and if for an economy, ∆ > ∆∗ under the
DLCU demand regime is in place.

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