Debt burden, investment, and profit-sharing

This study examines the relationship among profit-sharing, debt burden, and investment. For example, firms are able to pay off debts by increasing their internal reserves. Reducing the debt burden promotes investment demand, which we regard as "the investment-led effect." This study constructs a macrodynamic model of financial instability. That is, we consider the dynamic equation of debt burden and examine how the sharing parameter affects the dynamic system. We demonstrate that the normal profit-sharing rule makes the economy unstable, although we only consider the investment-led effect. We also show that Japan's profit-sharing rule always makes the economy unstable.