An Intertemporal Pasinettian Model with Government Sector

Abstract

This paper analyses the relevance of the Cambridge equation in the presence of_x000D_ government when the assumption of fixed savings is relaxed. We consider an intertemporal_x000D_ representative agent model with Pasinettian features. The results are: (i) the equilibrium_x000D_ distribution of income between wages and profits, as stated by the Cambridge equation, is not_x000D_ affected by the occurrence of sustained deficits or surpluses, (ii) the rate of profit is not_x000D_ determined by the Cambridge equation, and (iii) only taxation on profits affects the profit rate_x000D_ and, as a consequence, capital accumulation, wages, and output.