International Journal of Business and Economics

International Journal of Business and Economics
Volume 3, No. 3

December, 2004
An Intertemporal Pasinettian Model with Government Sector
João Ricardo Faria
School of Social Sciences, University of Texas at Dallas—Richardson, U.S.A.
Ricardo Azevedo Araujo
Catholic University of Brasilia, Brazil
This paper analyses the relevance of the Cambridge equation in the presence of government when the assumption of fixed savings is relaxed. We consider an intertemporal representative agent model with Pasinettian features. The results are: (i) the equilibrium distribution of income between wages and profits, as stated by the Cambridge equation, is not affected by the occurrence of sustained deficits or surpluses, (ii) the rate of profit is not determined by the Cambridge equation, and (iii) only taxation on profits affects the profit rate and, as a consequence, capital accumulation, wages, and output.
Keywords:intertemporal choice, factor income distribution.
JEL Classifications:D91, D33.