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Involuntary unemployment under monopolistic competition and fiscal policy for full-employment

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  • Tanaka, Yasuhito

Abstract

We show the existence of involuntary unemployment based on consumers' utility maximization and firms' profit maximization behavior under monopolistic competition with increasing, decreasing or constant returns to scale technology using a three-period overlapping generations (OLG) model with a childhood period as well as younger and older periods. We also analyze the effects of fiscal policy financed by tax and budget deficit (or seigniorage) to realize full-employment under a situation with involuntary unemployment. We show the following results. 1) In order to maintain the steady state where employment increases at some positive rate, we need a budget deficit (Proposition 1). 2) If the full-employment state is realized, we do not need budget deficit to maintain full-employment (Proposition 2).

Suggested Citation

  • Tanaka, Yasuhito, 2020. "Involuntary unemployment under monopolistic competition and fiscal policy for full-employment," MPRA Paper 101479, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101479
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    References listed on IDEAS

    as
    1. Masayuki Otaki, 2016. "Keynes’s General Theory Reconsidered in the Context of the Japanese Economy," SpringerBriefs in Economics, Springer, number 978-4-431-55915-3, October.
    2. Masayuki Otaki, 2015. "Price Theory in a Monetary Economy," Advances in Japanese Business and Economics, in: Keynesian Economics and Price Theory, edition 127, chapter 2, pages 15-41, Springer.
    3. Otaki, Masayuki, 2007. "The dynamically extended Keynesian cross and the welfare-improving fiscal policy," Economics Letters, Elsevier, vol. 96(1), pages 23-29, July.
    4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    5. Marc Lavoie, 2001. "Efficiency Wages in Kaleckian Models of Employment," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 23(3), pages 449-464, March.
    6. Otaki, Masayuki, 2009. "A welfare economics foundation for the full-employment policy," Economics Letters, Elsevier, vol. 102(1), pages 1-3, January.
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    Cited by:

    1. Tanaka, Yasuhito, 2021. "Technical progress and involuntary unemployment under deflation with real balance effect and fiscal policy for full-employment," MPRA Paper 106714, University Library of Munich, Germany.
    2. Yasuhito Tanaka, 2020. "Involuntary unemployment in overlapping generations model due to instability of the economy," Papers 2012.12199, arXiv.org.

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    More about this item

    Keywords

    Involuntary unemployment; Three-period overlapping generations model; Monopolistic competition;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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