Imperfect Governance and Price Stickiness in Emerging Economies

Zouhair Aït Benhamou ()
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Zouhair Aït Benhamou: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: Imperfect governance exacerbates macroeconomic fluctuations in emerging economies. We use strategic interactions between public and private goods to link price stickiness and institutional failure. The government as a provider of public goods exhibits agency in its relationship with households, and that yields to welfare losses for the latter. The government also faces a sub-optimal Laffer curve because of its inability to extract taxes. Imperfect governance also has an impact on terms of trade, as it distorts domestic prices in comparison to those of imported goods.

Keywords: inflation; nominal rigidities; government; agency theory; strategic interactions; Phillips curve (search for similar items in EconPapers)
Date: 2018
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