On the Likelihood and Welfare Effects of "Stop-and-go" Policies
Rui Baleiras () and
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Vasco Santos: Universidade Nova de Lisboa
Journal of Public Economic Theory, 2003, vol. 5, issue 1, 121-133
Baleiras and Santos (2000) show that "stop-and-go" policies may be inherent in the institutional set-up rather than result from the wrong timing of expansionary vs. contractionary policies or any form of players' irrationality. We use this set-up, involving ultrarational players and perfect foresight, to show that stop-and-go policies are more likely (in a statistical sense) than the opposite type of phenomenon. Moreover, it is shown that having the voters' and the business community's preferences concerning the cycle converge to the socially optimal cycle pattern may entail a welfare loss. Copyright 2003 Blackwell Publishing, Inc..
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