abstract: 'We study a two-class model of growth and the distribution of income and

  wealth at the intersection of contemporary work in classical political

  economy and post-Keynesian economics. The key insight is that aggregate

  demand is an externality for individual firms: this generates a

  strategic complementarity in production and results in equilibrium

  underutilization of the economy''s productive capacity, as well as

  hysteresis in real output. Underutilization also affects the functional

  distribution of income and the dis-tribution of wealth: both the wage

  share and the workers'' wealth share would be higher at full capacity.

  Consequently, fiscal allocation policy that achieves full utilization

  also attains a higher labor share and a more equitable distribution of

  wealth; while demand shocks have permanent level effects. Extensions

  look at hysteresis in the employment rate and growth. These findings are

  useful as an organizing frame-work for thinking through the lackluster

  economic record of the so-called Neoliberal era, the sluggish recovery

  of most advanced economies following the Great Recession, and the

  importance of fiscal policy in countering large shocks such as the

  Covid-19 pandemic.(c) 2022 Elsevier B.V. All rights reserved.'
affiliation: 'Tavani, D (Corresponding Author), Colorado State Univ, Dept Econ, 1771
  Campus Delivery, Ft Collins, CO 80523 USA.

  Petach, Luke, Belmont Univ, Jack Massey Coll Business, Nashville, TN 37212 USA.

  Tavani, Daniele, Colorado State Univ, Dept Econ, 1771 Campus Delivery, Ft Collins,
  CO 80523 USA.'
author: Petach, Luke and Tavani, Daniele
author-email: 'Luke.Petach@Belmont.edu

  Daniele.Tavani@Colostate.edu'
author_list:
- family: Petach
  given: Luke
- family: Tavani
  given: Daniele
da: '2023-09-28'
doi: 10.1016/j.strueco.2022.01.002
earlyaccessdate: JAN 2022
eissn: 1873-6017
files: []
issn: 0954-349X
journal: STRUCTURAL CHANGE AND ECONOMIC DYNAMICS
keywords: Externalities; Capacity utilization; Factor shares; Wealth inequality
keywords-plus: CAPACITY UTILIZATION; UNITED-STATES; GROWTH; PASINETTI; MODEL
language: English
month: MAR
number-of-cited-references: '53'
orcid-numbers: Tavani, Daniele/0000-0002-2757-0439
pages: 433-446
papis_id: c517728771feeed837d7d5dba56de6a7
ref: Petach2022aggregatedemand
researcherid-numbers: Tavani, Daniele/HSE-9182-2023
times-cited: '1'
title: Aggregate demand externalities, income distribution, and wealth inequality
type: Article
unique-id: WOS:000789745400029
usage-count-last-180-days: '2'
usage-count-since-2013: '6'
volume: '60'
web-of-science-categories: Economics
year: '2022'