A fiscal paradox and post-Keynesian economics: a comment on Palley

This paper corrects an error in Palley (2013) and offers an alternative interpretation of the difference between Cambridge and Kaleckian growth models. Using a Cambridge model with a variable profit share and full utilization of capital, a fiscal transfer from capitalists to workers is shown to increase (not decrease as Palley wrote) the capitalist share of wealth and to increase the profit share enough to impoverish workers, creating a type of transfer paradox. A balanced budget spending program financed with a tax on capitalists also has this effect. These results dramatize the fact that the Cambridge model confronts the distributional conflicts that the Kaleckian models are able to overlook by virtue of their assumption that the output capital ratio (the utilization rate) is a free variable.