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Production Subsidy As A Macroeconomic Policy In A Stagnation Economy

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  • WATARU JOHDO

    (Department of Economics, Tezukayama University, 7-1-1, Tezukayama, Nara 631-8501, Japan)

Abstract

This paper analyzes the effects of a changing production subsidy in a model with money-in-the-utility function for households, monopolistic competition amongst an endogenously-determined number of firms, and nominal wage sluggishness that can prevent the equilibrium from attaining full employment. Its conclusion is that in a steady state with less than full employment (that is, under stagnation), a larger production subsidy will promote entry and stimulate effective demand provided that the elasticity of substitution among the differentiated products is sufficiently high. This paper is motivated by recent Japanese experiences.

Suggested Citation

  • Wataru Johdo, 2008. "Production Subsidy As A Macroeconomic Policy In A Stagnation Economy," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 53(02), pages 317-333.
    • Handle: RePEc:wsi:serxxx:v:53:y:2008:i:02:n:s0217590808002963
    DOI: 10.1142/S0217590808002963
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    References listed on IDEAS

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    1. Miguel-Angel Martín & Agustín Herranz, 2004. "Human capital and economic growth in Spanish regions," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(4), pages 257-264, November.
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    Cited by:

    1. Daisuke Matsuzaki & Yoshiyasu Ono, 2023. "Economic stimulus effects of product innovation under demand stagnation," ISER Discussion Paper 1204rr, Institute of Social and Economic Research, Osaka University, revised Sep 2023.
    2. Daisuke Matsuzaki & Yoshiyasu Ono, 2023. "Economic stimulus effects of product innovation under demand stagnation," ISER Discussion Paper 1204, Institute of Social and Economic Research, Osaka University.
    3. Daisuke Matsuzaki & Yoshiyasu Ono, 2023. "Economic stimulus effects of product innovation under demand stagnation," ISER Discussion Paper 1204r, Institute of Social and Economic Research, Osaka University, revised Jul 2023.
    4. Murota, Ryu-ichiro & Ono, Yoshiyasu, 2015. "Fiscal policy under deflationary gap and long-run stagnation: Reinterpretation of Keynesian multipliers," Economic Modelling, Elsevier, vol. 51(C), pages 596-603.

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