International Finance Discussion Papers (IFDP)
September 1993
The Role of Fiscal Policy in an Incomplete Markets Framework
Abstract:
A general-equilibrium model is developed to highlight the link between neo-Keynesian models of unemployment and recent results on the constrained suboptimality of competitive economies with incomplete asset markets. Although the model deviates from the Arrow-Debreu paradigm only by the absence of some contingent claims, the competitive equilibrium exhibits under-employment and balanced-budget fiscal policies have Keynesian effects which are Pareto improving.
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