Foreign debt, conflicting claims and income policies in a Kaleckian model of growth and distribution

Abstract The paper develops a Kaleckian model of growth with endogenous income distribution, determined by conflicting claims on income shares. The article analyzes different demand, distribution and debt regimes, with external debt playing a differential role according to its impact on the exchange rate and on debt-servicing. We further study the impact of a tax-based income policy on the exchange-rate pass-through and external competitiveness. We find that the threat of taxation (or subsidies) can serve as an instrument to coordinate income claims, lower inflationary pressures and improve external price competitiveness.