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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page The Role of Fiscal Policy in an Incomplete Markets Framework
Charles P. Thomas
1993-451  (September 1993)

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 under­employment and balanced-budget fiscal policies have Keynesian effects which are Pareto improving.

Full paper(402 KB PDF)

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