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Public Debt and Functional Finance in an OLG Model with Imperfect Competition

  • Peter Skott

    ()

    (University of Massachusetts, Amherst)

  • Soon Ryoo

    ()

    (Adelphi University)

This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond OLG model with imperfect competition, (ii) fiscal policy may be needed to avoid inefficiency (if investment adjusts passively to saving) and maintain full employment (if investment and saving decisions are taken separately), (iii) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in 'household confidence', and (iv) the debt ratio is inversely related to both the growth rate and government consumption. JEL Categories: E62, E22

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Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2012-10.

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Date of creation: Dec 2012
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Handle: RePEc:ums:papers:2012-10
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  1. Peter Skott, . "Demand Policy in the Long Run," Economics Working Papers 2000-17, School of Economics and Management, University of Aarhus.
  2. Jan Kregel, 2010. "Fiscal Responsibility: What Exactly Does It Mean?," Economics Working Paper Archive wp_602, Levy Economics Institute.
  3. Philip Arestis & Malcolm Sawyer, 2010. "The return of fiscal policy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 32(3), pages 327-346, April.
  4. Schlicht, Ekkehart, 2004. "Public Debt as Private Wealth," Discussion Papers in Economics 371, University of Munich, Department of Economics.
  5. Hans Jørgen Jacobsen & Christian Schultz, 1991. "On the Effectiveness of Economic Policy when Competition is Imperfect and Expectations are Rational," Discussion Papers 91-16, University of Copenhagen. Department of Economics.
  6. Wynne Godley & Marc Lavoie, 2007. "Fiscal Policy in a Stock-Flow Consistent (SFC) Model," Economics Working Paper Archive wp_494, Levy Economics Institute.
  7. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," NBER Working Papers 15639, National Bureau of Economic Research, Inc.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  9. Lopez-Garcia, Miguel-Angel, 2008. "On the role of public debt in an OLG model with endogenous labor supply," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1323-1328, September.
  10. Paul Krugman & Gauti B. Eggertsson, 2011. "Debt, Deleveraging and the Liquidity Trap," 2011 Meeting Papers 1166, Society for Economic Dynamics.
  11. Pagano, Marco, 1989. "Imperfect Competition, Underemployment Equilibria and Fiscal Policy," CEPR Discussion Papers 280, C.E.P.R. Discussion Papers.
  12. d'ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GÉRARD-VARET, L.- A., . "Imperfect competition in an overlapping generations model: a case for fiscal policy," CORE Discussion Papers RP 1144, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Soon Ryoo & Peter Skott, 2011. "Public debt and full employment in a stock-flow consistent model of a corporate economy," UMASS Amherst Economics Working Papers 2011-26, University of Massachusetts Amherst, Department of Economics.
  14. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
  15. Finn Olesen, 2001. "Jørgen Pedersen: An Early Danish Contributor to Keynesian Economics," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 24(1), pages 31-40, October.
  16. Peter Skott & Soon Ryoo, 2008. "Macroeconomic implications of financialisation," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 827-862, November.
  17. Skott,Peter, 1989. "Conflict and Effective Demand in Economic Growth," Cambridge Books, Cambridge University Press, number 9780521365963.
  18. Peter Skott & Takeshi Nakatani, 2006. "Japanese growth and stagnation: a Keynesian perspective," UMASS Amherst Economics Working Papers 2006-04, University of Massachusetts Amherst, Department of Economics.
  19. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
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