This paper examines the fiscal requirements for continuous full employment. We find that (i) changes in the financial behavior of households and firms require adjustments in tax rates and public debt, (ii) the stability of the steady-state solution for public debt depends on the fiscal...

Fiscal policy is needed to avoid dynamic inefficiency and maintain full employment in a modified Diamond OLG model with imperfect competition. A distributionally neutral tax scheme can maintain full employment in the face of variations in "household confidence". No variations in taxes will be...

We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond model with imperfect competition, (ii) if fiscal policy is used to avoid inefficiency and maintain an optimal capital intensity, the required debt ratio will be inversely related to the growth rate, and (iii)...

This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond OLG model with imperfect competition, (ii) fiscal policy may be needed to avoid inefficiency (if investment adjusts passively to saving) and...

This paper uses a modi.ed Harrodian model to understand both the long period of rapid Japanese growth and the recent period of stagnation. The model has multiple steady-growth solutions when the labour supply is highly elastic, and government intervention, we argue, took the Japanese economy...