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Imperfect Competition, Underemployment Equilibria and Fiscal Policy

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  • Pagano, Marco

Abstract

It is often claimed that the demand externality created by imperfect competition can provide an analytical basis for Keynesian fiscal policy prescriptions. Here this demand externality is embedded in a model of monopolistic competition where saving and employment are determined by optimizing choices. It turns out that underemployment equilibria do exist, that there is scope for fiscal intervention, but that Keynesian fiscal prescriptions are turned on their head. Thus, demand externalities among imperfect competitors do not provide a general theoretical basis for these prescriptions, unless supplemented by other deviations from the Walrasian standard in the labor or capital market. Copyright 1990 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 100 (1990)
Issue (Month): 401 (June)
Pages: 440-63

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Handle: RePEc:ecj:econjl:v:100:y:1990:i:401:p:440-63

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Cited by:
  1. Peter Skott & Soon Ryoo, 2013. "Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate," UMASS Amherst Economics Working Papers 2013-10, University of Massachusetts Amherst, Department of Economics.
  2. Antulio N. Bomfim & Francis X. Diebold, 1997. "Bounded rationality and strategic complementarity in a macroeconomic model: policy effects, persistence, and multipliers," Working Papers 97-18, Federal Reserve Bank of Philadelphia.
  3. Ulrich van Suntum, . "The Purchasing Power Argument – Could Rising Wages Foster Employment?," Working Papers 200126, Institute of Spatial and Housing Economics, Munster Universitary.
  4. Partha Sen, 2008. "Fixed Costs, The Balanced-Budget Multiplier And Welfare," Working papers 171, Centre for Development Economics, Delhi School of Economics.
  5. Sen, Partha, 2002. "Welfare-improving debt policy under monopolistic competition," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 143-156, November.
  6. John, A. & Pecchenino, R. & Schmmelpfennig, D. & Schreft, S., 1990. "External Increasing Returns , Short-Lived Agents and Long- Lived Waste," Papers 8903, Michigan State - Econometrics and Economic Theory.
  7. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
  8. Pichelmann, Karl & Schuh, Andreas-Ulrich, 1996. "The NAIRU - Concept: A Few Remarks," Economics Series 36, Institute for Advanced Studies.
  9. Ramser, Hans Jürgen, 1992. "Nicht-kompetitive Gütermärkte im makroökonomischen Modell," Discussion Papers, Series 1 263, University of Konstanz, Department of Economics.
  10. Amedeo Panci, 1999. "Multiple equilibria: coordination failure and endogenous cycle," Working Papers 30, University of Rome La Sapienza, Department of Public Economics.
  11. Maria Scattaglia, 1994. "Politiche per l'occupazione e Microfondamenti "Keynesiani" dell'economia del lavoro," Working Papers 196, Dipartimento Scienze Economiche, Universita' di Bologna.
  12. Akram,Q.F. & Nymoen,R., 2001. "Employment behaviour in slack and tight labour markets," Memorandum 27/2001, Oslo University, Department of Economics.
  13. Emanuela Randon, . "Multiple Equilibria with Externalities," Discussion Papers 04/09, Department of Economics, University of York.
  14. Peter Skott & Soon Ryoo, 2012. "Public Debt and Functional Finance in an OLG Model with Imperfect Competition," UMASS Amherst Economics Working Papers 2012-10, University of Massachusetts Amherst, Department of Economics.
  15. van Suntum, Ulrich, 2008. "The purchasing power argument: Could rising wages foster employment?," CAWM Discussion Papers 2, Center of Applied Economic Research Münster (CAWM), University of Münster.

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