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Title: |
Optimum Policies with Unemployment and
International Capital Mobility |
| Author: |
Michael,
Michael S.; Hatzipanayotou, Panos |
| Author
Affiliation: |
U CT |
| Source: |
International Economic Journal, Winter 1990, v. 4, no. 4, pp. 35-46 |
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Publication Date: |
Winter 1990 |
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Abstract: |
We construct a small open economy model
characterized by unemployment, diminishing returns to scale in
production, and free international capital mobility. When a sub-optimum
labor subsidy exists, the optimal policy is a production or consumption
subsidy on the imported good, and it is an import tariff or subsidy
according to whether such a polcy raises the country's overall
employment. When for reasons other than efficiency, a sub-optimal tariff
structure exists, the optimal policy towards labor (capital) can be a
subsidy or tax when no capital (labor) tax or subsidy exists. When trade
is free, the optimal policy towards either factor is always a subsidy. |
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