Corporate debt, endogenous dividend rate, instability and growth

Abstract

In a neo-Kaleckian growth-model, we endogenize the dividend rate and corporate debt in the long run and investigate the possibility of multiple equilibria and instability in the economy. We find that the economy is in a wage-led demand and debt-burdened growth regime. However, both debt-led and debt-burdened demand regimes are possible. In some instances, the speed of the adjustment parameter related to the dividend dynamics plays a crucial role in stabilizing the economy. Otherwise, the economy may lose its stability and gives birth to limit cycles. A rise in the floor level of the targeted dividend–capital ratio has a destabilizing effect on the economy. The same is true for a rise in the interest rate. Moreover, a significant rise in the interest rate may cause instability in the economy. Therefore, a lower value of the floor level of the targeted dividend–capital ratio and a lower level of interest rate are desirable for promoting stability in the economy.