The Effect of an Employment Subsidy in Persistent Stagnation

Ryu-ichiro Murota

FinanzArchiv: Public Finance Analysis, 2023, vol. 79, issue 1, 1-31

Abstract: This paper develops a money-in-the-utility-function model in which a Phillips curve arises because of an efficiency wage and in which people's desire to accumulate money is insatiable. If this desire is strong enough, an economy falls into persistent stagnation with a deficiency in aggregate demand, unemployment, and deflation. This paper shows a counterintuitive result that an increase in an employment subsidy can exacerbate unemployment by worsening deflation and depressing aggregate demand.

Keywords: aggregatedemand; efficiencywage; employmentsubsidy; persistentstagnation; Phillipscurve (search for similar items in EconPapers)
JEL-codes: E12 E24 E71 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1628/fa-2022-0015

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