Asset market closure and the neo-Pasinetti theorem

This note comments on a corollary of the neo-Pasinetti Theorem – the dependence of national saving on corporate saving – as elaborated by Peter Skott in his model of corporate capitalism. The central insight is that, under an alternative closure that treats the wealth effect conveyed by the q-ratio as a mechanism for coordinating corporate investment and national saving, this corollary will not go through. An increase in corporate retentions will not affect the q-ratio or national saving; it will reduce the dividend yield and increase the rate of capital gains. This creates the impression that equity-owning households have ‘pierced the corporate veil’ when in fact this outcome follows from the logic of the corporate capitalist system under the alternative closure. The note thus qualifies the neo-Pasinetti result by showing that it depends on the choice of closure.