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The Role of Fiscal Policy in an Incomplete Markets Framework

Charles Thomas ()

Review of Economic Studies, 1995, vol. 62, issue 3, 449-468

Abstract: A general-equilibrium model is developed to highlight the link between neo-Keynesian models of unemployment and recent results on the constrained sub-optimality 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.

Date: 1995
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