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Production Subsidy As A Macroeconomic Policy In A Stagnation Economy

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  • WATARU JOHDO

    ()
    (Department of Economics, Tezukayama University, 7-1-1, Tezukayama, Nara 631-8501, Japan)

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    Abstract

    This paper analyzes the effects of a changing production subsidy in a model with money-in-the-utility function for households, monopolistic competition amongst an endogenously-determined number of firms, and nominal wage sluggishness that can prevent the equilibrium from attaining full employment. Its conclusion is that in a steady state with less than full employment (that is, under stagnation), a larger production subsidy will promote entry and stimulate effective demand provided that the elasticity of substitution among the differentiated products is sufficiently high. This paper is motivated by recent Japanese experiences.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal The Singapore Economic Review.

    Volume (Year): 53 (2008)
    Issue (Month): 02 ()
    Pages: 317-333

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    Handle: RePEc:wsi:serxxx:v:53:y:2008:i:02:p:317-333

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    Related research

    Keywords: Monopolistic competition; production subsidy; effective demand; stagnation;

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    Cited by:
    1. Ryu‚Äźichiro Murota & Yoshiyasu Ono, 2012. "Zero Nominal Interest Rates, Unemployment, Excess Reserves And Deflation In A Liquidity Trap," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 335-357, 05.

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