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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 imperfectly competitive markets can provide an analytical basis for Keynesian fiscal policy prescriptions. Here this demand externality is embedded in a model where saving and employment are determined by optimizing choices in an imperfectly competitive setting. 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. Demand externalities among imperfectly competitive firms do not in general provide a theoretical basis for these prescriptions, unless supplemented by other deviations from the Walrasian standard in the labor or capital market.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 280.

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Date of creation: May 1989
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Handle: RePEc:cpr:ceprdp:280

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Keywords: Employment; Externalities; Fiscal Policy; Imperfect Competition; Underemployment;

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Cited by:
  1. 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.
  2. Antulio N. Bomfim & Francis X. Diebold, 1996. "Bounded Rationality and Strategic Complementarity in a Macroeconomic Model: Policy Effects, Persistence and Multipliers," NBER Working Papers 5482, National Bureau of Economic Research, Inc.
  3. Ramser, Hans Jürgen, 1992. "Nicht-kompetitive Gütermärkte im makroökonomischen Modell," Discussion Papers, Series 1 263, University of Konstanz, Department of Economics.
  4. Emanuela Randon, . "Multiple Equilibria with Externalities," Discussion Papers 04/09, Department of Economics, University of York.
  5. Ulrich van Suntum, . "The Purchasing Power Argument – Could Rising Wages Foster Employment?," Working Papers 200126, Institute of Spatial and Housing Economics, Munster Universitary.
  6. Partha Sen, 2008. "Fixed Costs, The Balanced-Budget Multiplier And Welfare," Working papers 171, Centre for Development Economics, Delhi School of Economics.
  7. Akram,Q.F. & Nymoen,R., 2001. "Employment behaviour in slack and tight labour markets," Memorandum 27/2001, Oslo University, Department of Economics.
  8. A. John & R. Pecchenino & D. Schimmelpfennig & S. Schreft, 1990. "External increasing returns, short-lived agents and long-lived waste," Working Paper 91-02, Federal Reserve Bank of Richmond.
  9. 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.
  10. Maria Scattaglia, 1994. "Politiche per l'occupazione e Microfondamenti "Keynesiani" dell'economia del lavoro," Working Papers 196, Dipartimento Scienze Economiche, Universita' di Bologna.
  11. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
  12. Amedeo Panci, 1999. "Multiple equilibria: coordination failure and endogenous cycle," Working Papers 30, University of Rome La Sapienza, Department of Public Economics.
  13. Pichelmann, Karl & Schuh, Andreas-Ulrich, 1996. "The NAIRU - Concept: A Few Remarks," Economics Series 36, Institute for Advanced Studies.
  14. Partha Sen, . "Welfare-Improving Debt Policy under Monopolistic Competition," EPRU Working Paper Series 94-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

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