Debt dynamics in a Kaleckian model: entrepreneurs, rentiers, and the role of heterogeneity

What the paper says

Purpose This study develops a macroeconomic model with two distinct agent types: rentiers and entrepreneurs, where only the latter invest in capital. We explore how this heterogeneity affects macroeconomic stability and policy feasibility. Design/methodology/approach The model features a short-run static setup with heterogeneity embedded in the IS curve (goods market equilibrium). The main short-run tool is comparative statics. In the medium run, only the debt-to-GDP ratio evolves, while in the long run both agent shares and debt dynamics vary. We conduct dynamic analysis using a continuous-time differential equation system, assessing equilibrium and stability via classical dynamic systems theory. Numerical simulations use the Runge-Kutta method. Findings In the short run, a higher share of rentiers reduces the utilization rate, with real interest rates amplifying this effect. In the medium run, the debt-capital ratio follows a motion equation with agent shares exogenous. In the long run, agent shares evolve through an evolutionary game dynamic responding to return differentials between capital and government bonds. The interior solution, with both groups coexisting, is a saddle-path or, without a jumping variable, a knife-edge solution. Originality/value This is among the first papers to explicitly model dynamic heterogeneity between rentiers and entrepreneurs in debt-financing and investment, underscoring its relevance to macroeconomic dynamics.