CAPITAL ACCUMULATION, INFLATION TARGETING AND FISCAL POLICY IN A KALDORIAN MODEL

Abstract

The objective of this article is to analyse the relations between fiscal and monetary policy in an economy that operates under Inflation Targeting Regime with full utilization of productive capacity. In order to do that, it is developed a Kaldorin macrodynamic model in which the adjustment between investment and saving is done my changes in the profit share. Inflation resulted from distributive conflict between capitalists and workers, in a such way that the increase in profit share that came from an increase in investment rate will force workers to claim an increase in wages, causing a wage-price spiral and an increase in the short-run equilibrium level of inflation, that will be higher than the target level of inflation defined by Central Bank. In the long run, the increase in the profit share and in the inflation rate will result in adjustments either in the level of interest rate as in the level of capacity utilization. In such framework, a contractionary fiscal policy will produce a reduction in the long-run equilibrium value of interest rate with zero or negligible negative effect over capacity utilization. But a flexibilization of Inflation Targeting Regime will produce a decrease in the long-run equilibrium level of interest rate and a non-negligible increase in the level of capacity utilization.