Fiscal policies in a general equilibrium model with persistent unemployment (Q789285)

The essay studies a general equilibrium model of an economy with consumers, producers and an active public sector. The comparative statics of equilibria is used to analyze effects of fiscal policies. The economic quantities of interest, interrelations of which are examined, include employment rates, productivity of labor, minimum wage rates, public spending, deficit financing etc. The text is addressed to economists with advanced mathematical knowledge, and who are already familiar with the modes and practices of general equilibrium arguments. Most of the effort is devoted to the mathematical formulations and mathematical derivations. The economic motivation, and the economic meanings of the conditions and the results are displayed, and explained clearly. Yet, in the reviewer's opinion, it will be difficult for the untrained reader to follow the details. This inspite of the very good presentation and style. Some specifications of the model: It is a discrete overlapping generations model, in a stationary phase, i.e. \(-\infty<t<\infty\); consumers live two periods, and their preferenes depend also on public spending. Production which is decided upon in t results at \(t+1\). Production is financed by loans. Public sector buys goods and collects taxes, and may have a deficitory budget. A particular model which is dealt with in detail involves only one producer and three commodities. Some examples are computed.