On the Effectiveness of Economic Policy when Competition is Imperfect and Expectations are Rational
AbstractWe study the consequences of imperfect competition in a macro model with only one imperfection; that of labor market competition. Otherwise the model is ‘clean’; agents are optimizers, prices are endogenous, and expectations are rational. We show that, although imperfect competition in itself can explain unemployment (as is well known), it does not in itself give strong support to the use of traditional fiscal policy in fighting unemployment. Fiscal policy will (almost inevitably) have real effects but only through a special effect that may be difficult to control. In many cases fiscal policy cannot create full employment, and it may very well have perverse effects.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 91-16.
Length: 19 pages
Date of creation: Oct 1991
Date of revision:
Publication status: Published in: European Economic Review, 1994, 38(2) pp 305-327
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fiscal theory; stabilization theories and policies;
Other versions of this item:
- Jacobsen, Hans Jorgen & Schultz, Christian, 1994. "On the effectiveness of economic policy when competition is imperfect and expectations are rational," European Economic Review, Elsevier, vol. 38(2), pages 305-327, February.
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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- Coto-Martinez, Javier, 2006. "Public capital and imperfect competition," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 349-378, January.
- L Kaas & P Madden, 2002.
"Imperfectly Competitive Cycles with Keynesian and Walrasian Features,"
The School of Economics Discussion Paper Series
0211, Economics, The University of Manchester.
- Kaas, Leo & Madden, Paul, 2005. "Imperfectly competitive cycles with Keynesian and Walrasian features," European Economic Review, Elsevier, vol. 49(4), pages 861-886, May.
- L Kaas & P Madden, 2002. "Imperfectly Competitive Cycles with Keynesian and Walrasian Features," Centre for Growth and Business Cycle Research Discussion Paper Series 20, Economics, The Univeristy of Manchester.
- Kaas, Leo & Madden, Paul, 2000. "Imperfectly Competitive Cycles with Keynesian and Walrasian Features," Economics Series 83, Institute for Advanced Studies.
- Laurence Lasselle & Serge Svizzero, 1999. "Entry and Unemployment in a Union-Oligopoly Model," CRIEFF Discussion Papers 9904, Centre for Research into Industry, Enterprise, Finance and the Firm.
- Jorgen Jacobsen, Hans, 2000. "Endogenous, imperfectly competitive business cycles," European Economic Review, Elsevier, vol. 44(2), pages 305-336, February.
- Laurence Lasselle & Serge Svizzero, 2000. "Imperfectly Competitive Business Cycles With Underemployment," CRIEFF Discussion Papers 0011, Centre for Research into Industry, Enterprise, Finance and the Firm.
- 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.
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