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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.

Suggested Citation

  • Pagano, Marco, 1989. "Imperfect Competition, Underemployment Equilibria and Fiscal Policy," CEPR Discussion Papers 280, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:280
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    Citations

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    Cited by:

    1. Bomfim, Antulio N & Diebold, Francis X, 1997. "Bonded Rationality and Strategic Complementarity in a Macroeconomic Model: Policy Effects, Persistence and Multipliers," Economic Journal, Royal Economic Society, vol. 107(444), pages 1358-1374, September.
    2. Ulrich van Suntum, "undated". "The Purchasing Power Argument – Could Rising Wages Foster Employment?," Working Papers 200126, Institute of Spatial and Housing Economics, Munster Universitary.
    3. Partha Sen, 2009. "Fixed Costs, The Balanced Budget Multiplier And Welfare," The Japanese Economic Review, Japanese Economic Association, vol. 60(3), pages 395-404.
    4. Akram,Q.F. & Nymoen,R., 2001. "Employment behaviour in slack and tight labour markets," Memorandum 27/2001, Oslo University, Department of Economics.
    5. John, A. & Pecchenino, R. & Schmmelpfennig, D. & Schreft, S., 1990. "External Increasing Returns , Short-Lived Agents and Long- Lived Waste," Papers 8903, Michigan State - Econometrics and Economic Theory.
    6. repec:ums:papers:2012-10 is not listed on IDEAS
    7. M. Scattaglia, 1994. "Politiche per l'occupazione e Microfondamenti "Keynesiani" dell'economia del lavoro," Working Papers 196, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Benassy, Jean-Pascal, 1993. "Nonclearing Markets: Microeconomic Concepts and Macroeconomic Applications," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 732-761, June.
    9. Sen, Partha, 2002. "Welfare-improving debt policy under monopolistic competition," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 143-156, November.
    10. Frederic Dufourt & Rodolphe Dos Santos Ferreira, "undated". "Indeterminacy of Free Entry Equilibria: General Approach and Macroeconomic Applications," EcoMod2006 272100021, EcoMod.
    11. Skott Peter & Ryoo Soon, 2014. "Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-20, January.
    12. van Suntum, Ulrich, 2008. "The purchasing power argument: Could rising wages foster employment?," CAWM Discussion Papers 2, University of Münster, Center of Applied Economic Research Münster (CAWM).
    13. Ramser, Hans Jürgen, 1992. "Nicht-kompetitive Gütermärkte im makroökonomischen Modell," Discussion Papers, Series I 263, University of Konstanz, Department of Economics.
    14. Emanuela Randon, "undated". "Multiple Equilibria with Externalities," Discussion Papers 04/09, Department of Economics, University of York.
    15. Partha Sen, 1996. "Asset Bubbles In A Monopolistic Competitive Macro Model," Working papers 39, Centre for Development Economics, Delhi School of Economics.
    16. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 25(8), pages 1241-1261, August.
    17. Amedeo Panci, 1999. "Multiple equilibria: coordination failure and endogenous cycle," Working Papers 30, University of Rome La Sapienza, Department of Public Economics.
    18. Pichelmann, Karl & Schuh, Andreas-Ulrich, 1996. "The NAIRU - Concept: A Few Remarks," Economics Series 36, Institute for Advanced Studies.

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