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Imperfect Governance and Price Stickiness in Emerging Economies

Zouhair Ait Benhamou ()

No 2018-17, EconomiX Working Papers from University of Paris Nanterre, EconomiX

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)
JEL-codes: E31 E62 H41 P16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018
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Handle: RePEc:drm:wpaper:2018-17