CONSUMPTION AND DISTRIBUTIONAL CONFLICTS IN DEMAND-LED GROWTH MODELS: EVIDENCE FROM THE PSID DATA

Post-Keynesian growth models have incorporated household wealth dynamics as an important aspect of the relationship between growth and income distribution. Following these lines, this paper suggests a model in which households’ consumption decision is determined by a dynamic adjustment of wealth to a targeted level. We also suggest that households’ targeted level of wealth takes into account the average income that they earn over a period of eight years. We then run an empirical estimation using microlevel data for wealth and wages of US households available in the PSID (Panel Study on Income Dynamics) Database. We find that the model yields statistically significant results for most income and age groups. We also observe that the targeted wealth to wage ratio is not constant across groups of income and age. This ratio tends to increase with income and is actually negative for the lowest income bracket. This empirical analysis then suggests that there is evidence for claiming that household debt-financed consumption is a ’semi-autonomous’ component of demand and can be incorporated into a demand-led growth model to explain the trajectory of the US economy in the period under analysis.