Inhibition of Economic Cycle due to Profits not Re-Invested and Tax and Fiscal Policy

Abstract

  In the natural economy model, Luigi L. Pasinetti says that giving a reason for existence in the profit rate is the need for new investments, and the profit is equal to new investments. And it was shown that wages equal consumption.

  And while full employment is not automatically achieved, “bringing it as close as possible to the structure defined by the natural economy must be one of the social goals.”

  However, if the deduction of corporate tax and total fixed capital formation from total operating surplus and mixed income is called a profit that is not re-invested, the decline in investment has resulted in an increase in profits that are not re-invested in advanced countries.

  Based on Thomas Piketty’s point, the root cause of the divergence from this equilibrium is that the profit rate does not rise below 5％ even if capital does not increase.

  Therefore, this paper presents a model for correcting imbalances in the private economy with the fiscal function of the government, shows that the government has the fiscal function to overcome this, and clarifies that the shortage of consumption demand caused by internal reserves of profits that are not re-invested requires a budget deficit.

  It also clarified the need to strengthen the functioning of corporate-related taxes and income taxes, including the introduction of internal reserve taxes and taxes on monopoly profits, from the viewpoint that the accumulation of budget deficits supports internal reserves, weakens domestic product strength, increases anxiety about social security, widens income inequality, and changes corporate enterprises into money game entities, weakening the autonomy of the economy as a nation-state.