Inflationary and Distributional Effects of Alternative Fiscal Policies: An Augmented Minskyan-Kaleckian Model
This paper augments the basic Post-Keynesian markup model to examine the effects of different fiscal policies on prices and income distribution. This is an approach a la Hyman P. Minsky, who argued that in the modern era, government is both "a blessing and a curse," since it stabilizes profits and output by imparting an inflationary bias to the economy, but without stabilizing the economy at or near full employment. To build on these insights, the paper considers several distinct functions of government: 1) government as an income provider, 2) as an employer, and 3) as a buyer of goods and services. The inflationary and distributional effects of each of these fiscal policies differ considerably. First, the paper examines the effects of income transfers to individuals and firms (in the form of unemployment insurance and investment subsidies, respectively). Next, it considers government as an employer of workers (direct job creation) and as a buyer of goods and services (indirect job creation). Finally, it modifies the basic theoretical model to incorporate fiscal policy a la Minsky and John Maynard Keynes, where the government ensures full employment through direct job creation of all of the unemployed unable to find private sector work, irrespective of the phase of the business cycle. The paper specifically models Minsky's proposal for government as the employer of last resort (ELR), but the findings would apply to any universal direct job creation plan of similar design. The paper derives a fundamental price equation for a full-employment economy with government. The model presents a "price rule" for government spending that ensures that the ELR is not a source of inflation. Indeed, the fundamental equation illustrates that in the presence of such a price rule, at full employment inflationary effects are observed from sources other than the public sector employment program.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:rie:review:v:12:y:2007:i:3:n:1 is not listed on IDEAS
- L. Randall Wray, 1998.
Economics Working Paper Archive
wp_252, Levy Economics Institute.
- Cannari Luigi & D'Aurizio Leandro & de Blasio Guido, 2007.
"The Effectiveness of Investment Subsidies: Evidence from Survey Data,"
Rivista italiana degli economisti,
Società editrice il Mulino, issue 3, pages 329-346.
- Luigi Cannari & Leandro D'Aurizio & Guido de Blasio, 2006. "The effectiveness of investment subsidies: evidence from survey data," Questioni di Economia e Finanza (Occasional Papers) 4, Bank of Italy, Economic Research and International Relations Area.
When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_706. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards)
If references are entirely missing, you can add them using this form.