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Assessing the Practicability of the Condition used for Dynamic Equilibrium in Pasinetti Theory of Distribution

Publication Type : Journal Article

Publisher : ARXIV: arXiv:2104.05229v1

Source : ARXIV: arXiv:2104.05229v1 (2021)

Campus : Amritapuri

School : Department of Computer Science and Engineering, School of Engineering

Department : Mechanical Engineering

Year : 2021

Abstract : In this note an assessment of the condition \(K_w/K=S_w/S\) is made to interpret its meaning to the Passineti's theory of distribution\cite{pasinetti1962rate}. This condition leads the theory to enforce the result \(s_w\rightarrow0\) as \(P_w\rightarrow 0\), which is the Pasinetti's description about behavior of the workers. We find that the Pasinetti's claim, of long run worker's propensity to save as not influencing the distribution of income between profits and the wage can not be generalized. This claim is found to be valid only when \(W>>P_w\) or \(P_w=0\) with \(W\ne0\). In practice, the Pasinetti's condition imposes a restriction on the actual savings by one of the agents to a lower level compared to its full saving capacity. An implied relationship between the propensities to save by workers and capitalists shows that the Passineti's condition can be practiced only through a contract for a constant value of \(R=s_w/s_c\), to be agreed upon between the workers and the capitalists. It is showed that the Passineti's condition can not be described as a dynamic equilibrium of economic growth. Implementation of this condition (a) may lead to accumulation of unsaved income, (b) reduces growth of capital, (c)is not practicable and (d) is not warranted. We have also presented simple mathematical steps for the derivation of the Pasinetti's final equation compared to those presented in \cite{pasinetti1962rate}

Cite this Research Publication : A. Jayakrishnan and Dr. Anil Lal S., “Assessing the Practicability of the Condition used for Dynamic Equilibrium in Pasinetti Theory of Distribution”, ARXIV: arXiv:2104.05229v1 , 2021.

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