This paper presents a Kaleckian model of growth and distribution with
budget deficits and examines the effects of redistributive policy on the
economy. Furthermore, it analyzes the economic effects of redistributive policy
under the assumption of balanced budget. The important research results are
as follows. First, government spending for social security has smaller effects
on the economy than those of discretionary government purchase because of
its role of automatic stabilizer. Second, the exhilarationist regime as well as
the stagnationist regime can emerge depending on the relative size of the tax
rates for wage and capital income. Third, the tax rate for wage income has no
effect on the economy and only the tax rate for capital income has an impact
on the economy, when the government pursuits balanced budget. This result
is reminiscent of the theoretical implication of the Cambridge equation that
workers’ propensity to save does not affect the profit rate in the steady state,
while capitalists’ propensity to save only influences the profit rate. Lastly, the
tax rate for the capital income exerts a positive influence on the economy
under the assumption of balanced budget, since the decrease in consumption
expenditure due to the payment of the capital income tax is smaller than the
leakage of the capital income tax, which is again injected into the circular flow
of the economic system as a component of government expenditure.