TITLE:
Involuntary Unemployment and Fiscal Policy for Full-Employment
AUTHORS:
Yasuhito Tanaka
KEYWORDS:
Involuntary Unemployment, Three-Period Overlapping Generations Model, Perfect Competition
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.4,
August
3,
2020
ABSTRACT: In this paper we show the existence of involuntary
unemployment based on consumers’ utility maximization and firms’ profit
maximization behavior under perfect competition with decreasing or constant
returns to scale technology using a three-period overlapping generations (OLG)
model with a childhood period as well as younger and older periods, and analyze
the effects of fiscal policy financed by tax and budget deficit (or
seigniorage) to realize full-employment under a situation with involuntary
unemployment. We show the following results. 1) In order to maintain the steady
state where employment increases at some positive rate, we need a budget
deficit (Proposition 1). 2) If the full-employment state is realized, we do not
need budget deficit to maintain full-employment (Proposition 2).