Imperfect Competition in an Overlapping Generations Model: A Case for Fiscal Policy
Imperfect competition is a meaningful feature for macroeconomic analysis only to the extent that it leads to properties qualitatively different from those obtained under perfect competition. In particular, we have to wonder how imperfect competition per se may found an effective fiscal policy. For that matter we consider a simple overlapping generations model with firms acting as Cournot oligopolists in the good market. Through fiscal policy, a government, keeping the stock of money constant, redistributes wealth among generations and absorbs some of the output to provide public services. We show in this model that fiscal policy, by affecting firms' market power, can move the economy across perfect foresight stationary equilibria along a Pareto improving path, or that it can implement a full employment stationary equilibrium which Pareto-dominates underemployment equilibria.
Volume (Year): (1995)
Issue (Month): 37-38 ()
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