Cyclical Fluctuations in the Share of Corporate Profits in National Income

SUMMARY This paper investigates some of the determinants of the decline in corporate profits as a share of national income in six industrial countries. First, it presents evidence that much of the decline in the profits share has resulted from changes in the distribution of gross profits among dividends, interest, and retained earnings, apparently due to rising corporate debt/equity ratios. Second, the paper examines the cyclical behavior of the gross profits share. Estimates of the normal cyclical behavior of profits shares suggest that much of the recent decline in profits shares is a normal response to weak economic activity. Finally, the techniques used to estimate cyclically normal profits shares suggest that in most of these countries the profits share has been below its full‐employment level during the 1970's.