Income Distribution and Growth in Leontief’s Closed Model

Abstract

While the routine use of Leontief’s closed model is limited to the case in which the whole income of an economy goes to wages, this paper shows that the model also permits the representation of production programs corresponding to every level of income distribution between wages and profits. In addition, for each of these programs, the model allows calculating the price system and the profit rate when this rate is the same in all industries. Thus, the results obtained in Sraffa’s surplus economy are established following an alternative way, this makes it possible to build a particular standard system for each level of income distribution between wages and profits. Besides, the fact that the model includes the set of households as a particular industrial branch permits to build a balanced-growth path of the economy in which the quantities of work used in each industry as well as the goods consumed by the workers are studied explicitly, unlike what happens in von Neumann’s model. The paper also shows that, under a weak assumption, the balanced-growth rate is independent of the worker’s choice.