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  • E62  (57)
  • Annandale-on-Hudson, NY: Levy Economics Institute of Bard College  (56)
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  • 1
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper examines two key aspects of unemployment-its propagation mechanism and socioeconomic costs. It identifies a key feature of this macroeconomic phenomenon: it behaves like a disease. A detailed assessment of the transmission mechanism and the existing pecuniary and nonpecuniary costs of unemployment suggests a fundamental shift in the policy responses to tackling joblessness. To stem the contagion effect and its outsized social and economic impact, fiscal policy can be designed around two criteria for successful disease intervention-preparedness and prevention. The paper examines how a job guarantee proposal uniquely meets those two requirements. It is a policy response whose merits include much more than its macroeconomic stabilization features, as discussed in the literature. It is, in a sense, a method of inoculation against the vile effects of unemployment. The paper discusses several preventative features of the program.
    Keywords: E24 ; E62 ; H1 ; H4 ; I18 ; I3 ; J08 ; J6 ; ddc:330 ; Unemployment ; Epidemic ; Mortality ; Morbidity ; Health ; Scarring Effects ; Crime ; Family ; Job Guarantee ; Labor Market Dynamics ; Involuntary Job Loss ; Prevention
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 2
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper examines the issue of the Greek public debt from different perspectives. We provide a historical discussion of the accumulation of Greece's public debt since the 1960s and the role of public debt in the recent crisis. We show that the austerity imposed since 2010 has been unsuccessful in stabilizing the debt while at the same time taking a heavy toll on the Greek economy and society. The experience of the last six years shows that the country's public debt is clearly unsustainable, and therefore a bold restructuring is needed. An insistence on the current policies is not justifiable either on pragmatic or on moral or any other grounds. The experience of Germany in the early post-World War II period provides some useful hints for the way forward. A solution to the Greek public debt problem is a necessary but not sufficient condition for the solution of the Greek and wider European crisis. A broader agenda that deals with the malaises of the Greek economy and the structural imbalances of the eurozone is of vital importance.
    Keywords: E62 ; F34 ; F41 ; N10 ; N94 ; ddc:330 ; Greece ; Public Debt ; Austerity ; Eurozone ; Crisis
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 3
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper seeks to evaluate whether a gender-sensitive formula for the inter se devolution of union taxes to the states makes the process more progressive. We have used the state-specific child sex ratio (the number of females per thousand males in the age group 0-6 years) as one of the criteria for the tax devolution. The composite devolution formula as constructed provides maximum rewards to the state with the most favorable child-sex ratio, and the rewards progressively decline along with the declining sex ratio. In this formulation, the state with the most unfavorable child-sex ratio is penalized the most in terms of its share in the horizontal devolution. It is observed that the inclusion of gender criteria makes the intergovernmental fiscal transfers formula more equitable across states. This is not surprising given the monotonic decline in the sex ratio in some of the most high-income states in India.
    Keywords: E62 ; E63 ; ddc:330 ; Fiscal Devolution ; Gender ; Equity ; Intergovernmental Transfers
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 4
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper provides a critical analysis of expansionary austerity theory (EAT). The focus is on the theoretical weaknesses of EAT-the extreme circumstances and fragile assumptions under which expansionary consolidations might actually take place. The paper presents a simple theoretical model that takes inspiration from both the post-Keynesian and evolutionary/institutionalist traditions. First, it demonstrates that well-designed austerity measures hardly trigger short-run economic expansions in the context of expected long-lasting consolidation plans (i.e., when adjustment plans deal with remarkably high debt-to-GDP ratios), when the so-called "financial channel" is not operative (i.e., in the context of monetarily sovereign economies), or when the degree of export responsiveness to internal devaluation is low. Even in the context of non-monetarily sovereign countries (e.g., members of the eurozone), austerity's effectiveness crucially depends on its highly disputable capacity to immediately stabilize fiscal variables. The paper then analyzes some possible long-run economic dynamics, emphasizing the high degree of instability that characterizes austerity-based adjustments plans. Path-dependency and cumulativeness make the short-run impulse effects of fiscal consolidation of paramount importance to (hopefully) obtaining any appreciable medium-to-long-run benefit. Should these effects be contractionary at the onset, the short-run costs of austerity measures can breed an endless spiral of recession and ballooning debt in the long run. If so, in the case of non-monetarily sovereign countries debt forgiveness may emerge as the ultimate solution to restore economic soundness. Alternatively, institutional innovations like those adopted since mid-2012 by the European Central Bank are required to stabilize the economy, even though they are unlikely to restore rapid growth in the absence of more active fiscal stimuli.
    Keywords: E12 ; E61 ; E62 ; ddc:330 ; Fiscal Policy ; Expansionary Austerity Theory ; Post-Keynesian Macro Models
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 5
    Publication Date: 2017-03-07
    Description: This paper studies the wasteful effect of bureaucracy on the economy by addressing the link between opportunistic behavior of government bureaucrats and the public sector wage bill. In particular, public officials are modeled as individuals competing for a larger share of those public funds. A simple extraction technology in the government administration is introduced in a standard Real-Business-Cycle (RBC) setup augmented with detailed public sector. The model is calibrated to German data for the period 1970-2007. The main findings are: (i) the model performs well vis-a-vis the data; (ii) Due to the existence of a significant public sector wage premium and the high public sector employment, a substantial amount of working time is spent in opportunistic activities, which in turn leads to significant losses in terms of output; (iii) The model-based loss measures obtained for the EU-12 countries are highly-correlated to indices of bureaucratic inefficiency.
    Description: in press
    Keywords: E62 ; J45 ; E69 ; E32 ; ddc:330 ; rent-seeking ; opportunism ; public employment ; government wages
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 6
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The euro crisis remains unresolved and the euro currency union incomplete and extraordinarily vulnerable. The euro regime's essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. We propose a 'Euro Treasury' scheme to properly fix the regime and resolve the euro crisis. This scheme would establish a rudimentary fiscal union that is not a transfer union. The core idea is to create a Euro Treasury as a vehicle to pool future eurozone public investment spending and to have it funded by proper eurozone treasury securities. The Euro Treasury could fulfill a number of additional purposes while operating mainly on the basis of a strict rule. The plan would also provide a much-needed fiscal boost to recovery and foster a more benign intra-area rebalancing.
    Keywords: E32 ; E62 ; E63 ; H62 ; H63 ; ddc:330 ; Economic and Monetary Union ; Euro Crisis ; Euro Treasury ; Fiscal Union ; Public Investment
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 7
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper has two main objectives. The first is to propose a policy architecture that can prevent a very high public debt from resulting in a high tax burden, a government default, or inflation. The second objective is to show that government deficits do not face a financing problem. After these deficits are initially financed through the net creation of base money, the private sector necessarily realizes savings, in the form of either government bond purchases or, if a default is feared, 'acquisitions' of new money.
    Keywords: E12 ; E42 ; E52 ; E62 ; E63 ; ddc:330 ; Fiscal Policy ; Functional Finance ; Modern Monetary Theory ; Monetary Policy ; Public Debt Sustainability ; Zero Interest Rates
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 8
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: We examine the relationship between changes in a country's public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006-13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU's Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.
    Keywords: D31 ; D63 ; E62 ; E65 ; H6 ; ddc:330 ; Inequality ; Austerity ; Europe ; Fiscal Policy ; Lorenz Curve
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 9
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper explores the rise of money and class society in ancient Greece, drawing historical and theoretical parallels to the case of ancient Egypt. In doing so, the paper examines the historical applicability of the chartalist and metallist theories of money. It will be shown that the origins and the evolution of money were closely intertwined with the rise and consolidation of class society and inequality. Money, class society, and inequality came into being simultaneously, so it seems, mutually reinforcing the development of one another. Rather than a medium of exchange in commerce, money emerged as an "egalitarian token" at the time when the substance of social relations was undergoing a fundamental transformation from egalitarian to class societies. In this context, money served to preserve the façade of social and economic harmony and equality, while inequality was growing and solidifying. Rather than "invented" by private traders, money was first issued by ancient Greek states and proto-states as they aimed to establish and consolidate their political and economic power. Rather than a medium of exchange in commerce, money first served as a "means of recompense" administered by the Greek city-states as they strived to implement the civic conception of social justice. While the origins of money are to be found in the origins of inequality, a well-functioning democratic society has the power to subvert the inequality-inducing characteristic of money via the use of money for public purpose, following the principles of Modern Money Theory (MMT). When used according to the principles of MMT, the inequality-inducing characteristic of money could be undermined, while the current trends in rising income and wealth disparities could be contained and reversed.
    Keywords: B5 ; B25 ; B41 ; E11 ; E12 ; E42 ; E52 ; E62 ; E63 ; H6 ; N1 ; N2 ; P1 ; P4 ; P5 ; Z1 ; ddc:330 ; Nature of Money ; Chartalism ; Metallism ; Origins of Money ; Origins of Coinage ; Inequality ; Class ; Ideology ; Religious Ideology ; State Formation ; State Theory of Money ; Modern Money Theory
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 10
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The scientific reassessment of the economic role of the state after the crisis has renewed interest in Abba Lerner's theory of functional finance (FF). A thorough discussion of this concept is helpful in reconsidering the debate on the nature of money and the origin of the business cycle and crises. It also allows a reevaluation of many policy issues, such as the Barro-Ricardo equivalence, the cause of inflation, and the role of monetary policy. FF, throwing a different light on these issues, can provide a sound foundation for discussing income, fiscal, and monetary policy rules in the right context of flexibility in the management of national budgets, assessing what kind of policies should be awarded priority, and the effectiveness of tackling the crisis with the different part of public budget. It also allows us to understand ways of increasing efficiency through public investment while reducing the total operational costs of firms. In the specific context of the eurozone, FF is useful for assessing the institutional framework of the euro and how to improve it in the face of protracted low growth, deflation, and weak public finances.
    Keywords: B22 ; E62 ; E63 ; ddc:330 ; Crisis ; Functional Finance ; Debt ; Growth ; Sustainability of Public Finance ; Central Bank Independence
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 11
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The implementation of economic reforms under new economic policies in India was associated with a paradigmatic shift in monetary and fiscal policy. While monetary policies were solely aimed at "price stability" in the neoliberal regime, fiscal policies were characterized by the objective of maintaining "sound finance" and "austerity". Such monetarist principles and measures have also loomed over the global recession. This paper highlights the theoretical fallacies of monetarism and analyzes the consequences of such policy measures in India, particularly during the period of the global recession. Not only did such policies pose constraints on the recovery of output and employment, with adverse impacts on income distribution; but they also failed to achieve their stated goal in terms of price stability. By citing examples from southern Europe and India, this paper concludes that such monetarist policy measures have been responsible for stagnation, with a rise in price volatility and macroeconomic instability in the midst of the global recession.
    Keywords: E12 ; E31 ; E44 ; E50 ; E51 ; E52 ; E58 ; E62 ; E64 ; ddc:330 ; Austerity ; Development Expenditures ; Exchange Rate Volatility ; Fiscal Deficit ; Fiscal Policy ; FRBMA ; Inflation ; Interest Payments ; Interest Rates ; Monetarism ; Monetary Policy ; Sound Finance
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 12
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unconstrained by hard financial limits. Not only can they issue their own currency to pay public debt denominated in their own currency, but they can also easily bypass any self-imposed constraint on budgetary operations. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of the United States, the eurozone, and Australia, MMT has provided institutional and theoretical insights into the inner workings of economies with monetarily sovereign and nonsovereign governments. The paper shows that the previous theoretical conclusions of MMT can be illustrated by providing further evidence of the interconnectedness of the treasury and the central bank in the United States.
    Keywords: E02 ; E42 ; E52 ; E62 ; ddc:330 ; Modern Money Theory ; Monetary Policy ; Fiscal Policy
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 13
    Publication Date: 2018-11-07
    Description: This paper describes the political economy of shadow banking and how it relates to the dramatic institutional changes experienced by global capitalism over past 100 years. We suggest that the dynamics of shadow banking rest on the distributive tension between workers and firms. Politics wedge the operation of the shadow financial system as government policy internalizes, guides, and participates in dealings mediated by financial intermediaries. We propose a broad theoretical overview to formalize a stock-flow consistent (SFC) political economy model of shadow banking (stylized around the operation of money market mutual funds, or MMMFs). Preliminary simulations suggest that distributive dynamics indeed drive and provide a nest for the dynamics of shadow banking.
    Keywords: E12 ; E62 ; E63 ; H5 ; H6 ; P16 ; ddc:330 ; Political Cycles ; Debt and Public Finance ; Shadow Banking ; Political Economy of Finance ; Kaleckian Macrodynamics ; Stock-Flow Consistent (SFC) Modeling ; Political Macroeconomic Models
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 14
    Publication Date: 2018-11-07
    Description: In this paper we outline alternative policy recommendations addressing the problems of differential inflation, divergence in competitiveness, and associated current account imbalances within the euro area. The major purpose of these alternative policy proposals is to generate sustainably high demand and output growth in the euro area as a whole, providing high levels of noninflationary employment, as well as preventing "export-led mercantilist" and "debt-led consumption boom" types of development, both within the euro area and with respect to the role of the euro area in the world economy. We provide a basic framework in order to systematically address the related issues, making use of Anthony Thirlwall's model of a "balance-of-payments-constrained growth rate." Based on this framework, we outline the required stance for alternative economic policies and then discuss the implications for alternative monetary, wage/incomes, and fiscal policies in the euro area as a whole, as well as the consequences for structural and regional policies in the euro-area periphery in particular.
    Keywords: E61 ; E62 ; E63 ; E64 ; ddc:330 ; Competitiveness ; Current Account Imbalances ; Differential Inflation Rates ; Euro Area Economic Policies
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 15
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper explores the intellectual history of the state, or chartalist, approach to money, from the early developers (Georg Friedrich Knapp and A. Mitchell Innes) through Joseph Schumpeter, John Maynard Keynes, and Abba Lerner, and on to modern exponents Hyman Minsky, Charles Goodhart, and Geoffrey Ingham. This literature became the foundation for Modern Money Theory (MMT). In the MMT approach, the state (or any other authority able to impose an obligation) imposes a liability in the form of a generalized, social, legal unit of account - a money - used for measuring the obligation. This approach does not require the preexistence of markets; indeed, it almost certainly predates them. Once the authorities can levy such obligations, they can name what fulfills any obligation by denominating those things that can be delivered; in other words, by pricing them. MMT thus links obligatory payments like taxes to the money of account as well as the currency. This leads to a revised view of money and sovereign finance. The paper concludes with an analysis of the policy options available to a modern government that issues its own currency.
    Keywords: B1 ; B3 ; B15 ; B22 ; B25 ; B52 ; E40 ; E50 ; E62 ; H5 ; H60 ; N1 ; ddc:330 ; Modern Money Theory ; Chartalism ; State Money ; Knapp ; Innes ; Schumpeter ; Keynes ; Minsky ; Goodhart ; Ingham ; Sovereign Currency
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 16
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany.
    Keywords: E25 ; E61 ; E62 ; E64 ; E65 ; H62 ; H63 ; ddc:330 ; Fiscal Policy ; Rebalancing ; Functional Income Distribution ; Debt Brake ; Germany ; Euro Area
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 17
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper analyzes the trajectories of the Greek public deficit and sovereign debt over the last three decades and their connection to the political and economic environment, paying special attention to the causality between the public and the foreign deficit. The authors argue that, from 1980 to 1995, causality ran from the public deficit to the foreign deficit but has since reversed, a result of the European monetary unification process and the adoption of the common currency. This hypothesis is tested and verified econometrically using the Granger causality and cointegration analyses.
    Keywords: E62 ; F21 ; F34 ; F41 ; ddc:330 ; Greece ; crisis ; public debt ; twin deficits ; imbalances
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 18
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The present paper offers a fundamental critique of fiscal policy as it is understood in theory and exercised in practice. Two specific demand-side stabilization methods are examined here: conventional pump priming and the new designation of fiscal policy effectiveness found in the New Consensus literature. A theoretical critique of their respective transmission mechanisms reveals that they operate in a trickle-down fashion that not only fails to secure and maintain full employment but also contributes to the increasing postwar labor market precariousness and the erosion of income inequality. The two conventional demand-side measures are then contrasted with the proposed alternative - a bottom-up approach to fiscal policy based on a reinterpretation of Keynes's original policy prescriptions for full employment. The paper offers a theoretical, methodological, and policy rationale for government intervention that includes specific direct-employment and investment initiatives, which are inherently different from contemporary hydraulic fine-tuning measures. It outlines the contours of the modern bottom-up approach and concludes with some of its advantages over conventional stabilization methods.
    Keywords: E24 ; E25 ; E62 ; E63 ; J68 ; ddc:330 ; Full Employment ; Fiscal Policy ; Aggregate Demand ; Business Cycles ; Income Distribution ; New Consensus
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 19
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The euro crisis remains unresolved even as financial markets may seem calm for now. The current euro regime is inherently flawed, and recent reforms have failed to turn this dysfunctional regime into a viable one. Our investigation is informed by the "cartalist" critique of traditional "optimum currency area" theory (Goodhart 1998). Various proposals to rescue the euro are assessed and found lacking. A "Euro Treasury" scheme operating on a strict rule and specifically designed not to be a transfer union is proposed here as a condition sine qua non for healing the euro's potentially fatal birth defects. The Euro Treasury proposed here is the missing element that will mend the current fiscal regime, which is unworkable without it. The proposed scheme would end the currently unfolding euro calamity by switching policy from a public thrift campaign that can only impoverish Europe to a public investment campaign designed to secure Europe's future. No mutualization of existing national public debts is involved. Instead, the Euro Treasury is established as a means to pool eurozone public investment spending and have it funded by proper eurozone treasury securities.
    Keywords: E02 ; E42 ; E58 ; E61 ; E62 ; F36 ; G01 ; ddc:330 ; Euro Crisis ; Currency Union ; Fiscal Union ; Transfer Union ; Cartalism ; Lender of Last Resort ; European Integration
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 20
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The literature on public employment policies such as the job guarantee (JG) and the employer of last resort (ELR) often emphasizes their macroeconomic stabilization effects. But carefully designed and implemented policies like these can also have profound social transformative effects. In particular, they can help address enduring economic problems such as poverty and gender disparity. To examine how, this paper will look at the reform of Argentina’s Plan Jefes into Plan Familias. Plan Jefes was the hallmark stabilization policy of the Argentine government after the 2001 crisis. It guaranteed a public sector job in a community project to unemployed male and female heads of households. The vast majority of beneficiaries, however, turned out to be poor women. For a number of reasons that are explored below, the program was later reformed into a cash transfer policy, known as Plan Familias, that still exists today. The paper examines this reform in order to evaluate the relative impact of such policies on some of the most vulnerable members of society; namely, poor women. An examination of the Argentine experience based on survey evidence and fieldwork reveals that poor women overwhelmingly want paid work opportunities, and that a policy such as the JG or the ELR cannot only guarantees full employment and macroeconomic stabilization, but it can also serve as an institutional vehicle that begins to transform some of the structures and norms that produce and reproduce gender disparities. These transformative features of public employment policies are elucidated by turning to the capabilities approach developed by Amartya Sen and elaborated by Martha Nussbaum - an approach commonly invoked in the feminist literature. This paper examines how the access to paid employment can enhance what Sen defines as an individual’s 'substantive freedom'. Any policy that fosters genuine freedom begins with an understanding of what the targeted population (in this case, poor women) wants. It then devises a strategy that guarantees that such opportunities exist and removes the obstacles to accessing these opportunities.
    Keywords: B54 ; D02 ; D13 ; D31 ; D63 ; E24 ; E26 ; E62 ; E65 ; H31 ; H41 ; H53 ; I38 ; ddc:330 ; capabilities approach ; employer of last resort ; job guarantee ; basic income ; cash transfers ; public employment ; gender inequality ; poverty ; Plan Jefes ; Plan Familias ; Argentina
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  • 21
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Euroland is in a crisis that is slowly but surely spreading from one periphery country to another; it will eventually reach the center. The blame is mostly heaped upon supposedly profligate consumption by Mediterraneans. But that surely cannot apply to Ireland and Iceland. In both cases, these nations adopted the neoliberal attitude toward banks that was pushed by policymakers in Europe and America, with disastrous results. The banks blew up in a speculative fever and then expected their governments to absorb all the losses. The situation was similar in the United States, but in our case the debts were in dollars and our sovereign currency issuer simply spent, lent, and guaranteed 29 trillion dollars’ worth of bad bank decisions. Even in our case it was a huge mistake - but it was 'affordable'. Ireland and Iceland were not so lucky, as their bank debts were in 'foreign' currencies. By this I mean that even though Irish bank debt was in euros, the Government of Ireland had given up ist own currency in favor of what is essentially a foreign currency - the euro, which is issued by the European Central Bank (ECB). Every euro issued in Ireland is ultimately convertible, one to one, to an ECB euro. There is neither the possibility of depreciating the Irish euro nor the possibility of creating ECB euros as necessary to meet demands for clearing. Ireland is in a situation similar to that of Argentina a decade ago, when it adopted a currency board based on the US dollar. And yet the authorities demand more austerity, to further reduce growth rates. As both Ireland and Greece have found out, austerity does not mean reduced budget deficits, because tax revenues fall faster than spending can be cut. Indeed, as I write this, Athens has exploded in riots. Is there an alternative path? In this piece I argue that there is. First, I quickly summarize the financial foibles of Iceland and Ireland. I will then - also quickly - summarize the case for debt relief or default. Then I will present a program of direct job creation that could put Ireland on the path to recovery. Understanding the financial problems and solutions puts the jobs program proposal in the proper perspective: a full implementation of a job guarantee cannot occur within the current financial arrangements. Still, something can be done.
    Keywords: E12 ; E32 ; E34 ; E62 ; E65 ; G01 ; G15 ; H62 ; H63 ; ddc:330 ; Euro crisis ; financial crisis in Ireland ; employer of last resort ; job guarantee ; bank bailout ; Irish debt crisis ; government debt crisis ; Minsky
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The paper evaluates the fiscal policy initiatives during the Great Recession in the United States. It argues that, although the nonconventional fiscal policies targeted at the financial sector dwarfed the conventional countercyclical stabilization efforts directed toward the real sector, the relatively disappointing impact on employment was a result of misdirected funding priorities combined with an exclusive and ill-advised focus on the output gap rather than on the employment gap. The paper argues further that conventional pump-priming policies are incapable of closing this employment gap. In order to tackle the formidable labor market challenges observed in the United States over the last few decades, policy could benefit from a fundamental reorientation away from trickle-down Keynesianism and toward what is termed here a bottom-up approach to fiscal policy. This approach also reconsiders the nature of countercyclical government stabilizers.
    Keywords: E24 ; E25 ; E61 ; E62 ; E65 ; H1 ; H5 ; J2 ; J6 ; J48 ; ddc:330 ; Fiscal Policy ; American Recovery and Reinvestment Act of 2009 ; Trickle-Down Keynesianism ; Countercyclical Employment Policy
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  • 23
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Financial market crises with the threat of a subsequent debt-deflation depression have occurred with increasing regularity in the United States from 1980 through the present. Almost reflexively, when confronted with such circumstances, US institutions and the policymakers that run them have responded in a fashion that has consistently thwarted debt-deflation-depression dynamics. It is true that these remedies, as they succeeded, increasingly contributed to a moral hazard in US and global financial markets that culminated with the crisis that began in 2007. Nonetheless, the straightforward steps taken by established institutions enabled the United States to derail depression dynamics, while European 1930s-style austerity proved as ineffective as it was almost a century ago. Europe's, and specifically Germany's, steadfast refusal to embrace the US recipe has fostered mushrooming economic hardship on the continent. The situation is gruesome, and any serious student of economic history had to have known, given European policy commitments, that it was destined to turn out this way. It is easy to understand why misguided policies drove initial European responses. Economic theory has frowned on Keynes. Economic successes, especially in Germany, offered up the wrong lessons, and enduring angst about inflation was a major distraction. At the outset, the wrong medicine for the wrong disease was to be expected. That is much harder to fathom is why such a poisonous elixir continues to be proffered amid widespread evidence that the patient is dying. Deconstructing cognitive dissonance in other spheres provides an explanation. Not surprisingly, knowing what one wants to happen at home completely informs one's claims concerning what will be good for one's neighbors. In such a construct, the last best hope for Europe is ECB President Mario Draghi. He seems to be able to speak German and yet act European.
    Keywords: B20 ; B31 ; E62 ; E63 ; E65 ; F01 ; F36 ; G01 ; H63 ; ddc:330 ; austerity ; central banks ; economic stability ; euro ; European Central Bank ; eurozone ; eurozone debt crisis ; financial crisis ; financial instability ; financial markets ; fiscal policy ; government policy and regulation ; Hyman Minsky ; sovereign debt ; stabilization ; United States
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  • 24
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper argues that the usual framing of discussions of money, monetary policy, and fiscal policy plays into the hands of conservatives.That framing is also largely consistent with the conventional view of the economy and of society more generally. To put it the way that economists usually do, money lubricates the market mechanism - a good thing, because the conventional view of the market itself is overwhelmingly positive. Acknowledging the work of George Lakoff, this paper takes the position that we need an alternative meme, one that provides a frame that is consistent with a progressive social view if we are to be more successful in policy debates. In most cases, the progressives adopt the conservative framing and so have no chance. The paper advances an alternative framing for money and shows how it can be used to reshape discussion. The paper shows that the Modern Money Theory approach is particularly useful as a starting point for framing that emphasizes use of the monetary system as a tool to accomplish the public purpose. It is not so much the accuracy of the conventional view of money that we need to question, but rather the framing. We need a new meme for money, one that would emphasize the social, not the individual. It would focus on the positive role played by the state, not only in the creation and evolution of money, but also in ensuring social control over money. It would explain how money helps to promote a positive relation between citizens and the state, simultaneously promoting shared values such as liberty, democracy, and responsibility. It would explain why social control over money can promote nurturing activities over the destructive impulses of our undertakers (Smith's evocative term for capitalists).
    Keywords: A11 ; A12 ; A14 ; B15 ; B50 ; E21 ; E42 ; E44 ; E50 ; E62 ; H1 ; H40 ; H60 ; H62 ; H63 ; ddc:330
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper augments the basic Post-Keynesian markup model to examine the effects of different fiscal policies on prices and income distribution. This is an approach à la Hyman P. Minsky, who argued that in the modern era, government is both 'a blessing and a curse', since it stabilizes profits and output by imparting an inflationary bias to the economy, but without stabilizing the economy at or near full employment. To build on these insights, the paper considers several distinct functions of government: 1) government as an income provider, 2) as an employer, and 3) as a buyer of goods and services. The inflationary and distributional effects of each of these fiscal policies differ considerably. First, the paper examines the effects of income transfers to individuals and firms (in the form of unemployment insurance and investment subsidies, respectively). Next, it considers government as an employer of workers (direct job creation) and as a buyer of goods and services (indirect job creation). Finally, it modifies the basic theoretical model to incorporate fiscal policy à la Minsky and John Maynard Keynes, where the government ensures full employment through direct job creation of all of the unemployed unable to find private sector work, irrespective of the phase of the business cycle. The paper specifically models Minsky’s proposal for government as the employer of last resort (ELR), but the findings would apply to any universal direct job creation plan of similar design. The paper derives a fundamental price equation for a full-employment economy with government. The model presents a 'price rule' for government spending that ensures that the ELR is not a source of inflation. Indeed, the fundamental equation illustrates that in the presence of such a price rule, at full employment inflationary effects are observed from sources other than the public sector employment program.
    Keywords: E12 ; E24 ; E25 ; E31 ; E62 ; H11 ; ddc:330 ; Minsky ; Kalecki model ; alternative fiscal polices ; income transfers ; investment subsidies ; direct job creation ; employer of last resort ; inflation ; income distribution
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  • 26
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: It is commonplace to link neoclassical economics to 18th- or 19th-century physics and its notion of equilibrium, of a pendulum once disturbed eventually coming to rest. Likewise, an economy subjected to an exogenous shock seeks equilibrium through the stabilizing market forces unleashed by the invisible hand. The metaphor can be applied to virtually every sphere of economics: from micro markets for fish that are traded spot, to macro markets for something called labor, and on to complex financial markets in synthetic collateralized debt obligations - CDOs. Guided by invisible hands, supplies balance demands and markets clear. Armed with metaphors from physics, the economist has no problem at all extending the analysis across international borders to traded commodities, to what are euphemistically called capital flows, and on to currencies themselves. Certainly there is a price, somewhere, somehow, that will balance supply and demand. The orthodox economist is sure that if we just get the government out of the way, the market will do the dirty work. The heterodox economist? Well, she is less sure. The market might not work. It needs a bit of coaxing. Imbalances can persist. Market forces can be rather impotent. The visible hand of government can hasten the move toward balance. Orthodox economists as well as most heterodox economists see the Global Financial Crisis as a consequence of domestic and global imbalances. The most common story blames the US Federal Reserve for excessive monetary ease that spurred borrowing, and the US fiscal and trade imbalances for a surplus of liquidity sloshing around global financial markets. Looking to the specific problems in Euroland, the imbalances are attributed to profligate Mediterraneans. The solution is to restore global balance, which requires some combination of higher exchange rates for the Chinese, reduction of US trade deficits, and Teutonic fiscal discipline in the United States, the UK, and Japan, as well as on the periphery of Europe. This paper takes an alternative view, following the sectoral balances approach of Wynne Godley, combined with the modern money theory (MMT) approach derived from the work of Innes, Knapp, Keynes, Lerner, and Minsky. The problem is not one of financial imbalance, but rather one of an imbalance of power. There is too much power in the hands of the financial sector, money managers, the predator state, and Europe’s center. There is too much privatization and pursuit of the private purpose, and too little use of government to serve the public interest. In short, there is too much neoliberalism and too little democracy, transparency, and accountability of government.
    Keywords: E12 ; E32 ; E42 ; E52 ; E62 ; E63 ; F02 ; F32 ; F33 ; F34 ; F36 ; G15 ; H6 ; ddc:330 ; global imbalances ; sectoral balances approach ; modern money theory ; debt cancellation ; global financial crisis ; Euro crisis ; EMU ; state theory of money ; functional finance
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  • 27
    Publication Date: 2018-11-07
    Description: Not since the Great Depression have monetary policy matters and institutions weighed so heavily in commercial, financial, and political arenas. Apart from the eurozone crisis and global monetary policy issues, for nearly two years all else has counted for little more than noise on a relative risk basis. In major developed economies, a hypermature secular decline in interest rates is pancaking against a hard, roughly zero lower-rate bound (i.e., barring imposition of rather extreme policies such as a tax on cash holdings, which could conceivably drive rates deeply negative). Relentlessly mounting aggregate debt loads are rendering monetary- and fiscal policy-impaired governments and segments of society insolvent and struggling to escape liquidity quicksands and stubbornly low or negative growth and employment trends. At the center of the current crisis is the European Monetary Union (EMU) - a monetary union lacking fiscal and political integration. Such partial integration limits policy alternatives relative to either full federal integration of member-states or no integration at all. As we have witnessed since spring 2008, this operationally constrained middle ground progressively magnifies economic divergence and political and social discord across member-states. Given the scale and scope of the eurozone crisis, policy and actions taken (or not taken) by the European Central Bank (ECB) meaningfully impact markets large and small, and ripple with force through every major monetary policy domain. History, for the moment, has rendered the ECB the world’s most important monetary policy pivot point. Since November 2011, the ECB has taken on an arguably activist liquidity-provider role relative to private banks (and, in some important measure, indirectly to sovereigns) while maintaining its long-held post as 'rhetorical' promoter of staunch fiscal discipline relative to sovereignty-encased 'peripheral' states lacking full monetary and fiscal integration. In December 2011, the ECB made clear its intention to inject massive liquidity when faced with crises of scale in future. Already demonstratively disposed toward easing due to conditions on their respective domestic fronts, other major central banks have mobilized since the third quarter of 2011. The collective global central banking policy posture has thus become more homogenized, synchronized, and directionally clear than at any time since early 2009.
    Keywords: E02 ; E31 ; E42 ; E44 ; E51 ; E52 ; E58 ; E61 ; E62 ; E63 ; F36 ; H63 ; ddc:330 ; Eurozone ; monetary policy ; fiscal policy ; European Central Bank ; European Monetary Union ; debt monetization ; Euro ; Basel ; sovereign debt ; credit default swaps ; liquidity ; solvency ; deleveraging ; LTRO
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Recently, some have wondered whether a fiscal stimulus plan could reduce the government's budget deficit. Many also worry that fiscal austerity plans will only bring higher deficits. Issues of this kind involve endogenous changes in tax revenues that occur when output, real wages, and other variables are affected by changes in policy. Few would disagree that various paradoxes of austerity or stimulus might be relevant, but such issues can be clarified a great deal with the help of a complete heterodox model.
    Keywords: E12 ; E32 ; E62 ; J65 ; ddc:330 ; Financial Crisis ; Post-Keynesian Economics ; Fiscal-policy Rule ; Dynamical System ; Markup Dynamics ; Kalecki-Steindl Model of Effective Demand ; Hyman Minsky ; Automatic Stabilizers ; Growth Cycles ; Budget Deficit ; Capacity-utilization Targeting Rule ; Historical Time ; Policy Regime Switches ; Keynesian Kaleidics ; Chartalism ; Distributive Curve
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Controlling for capital flows using the high-frequency macro data of a financially deregulated regime, this paper examines whether there is any evidence of the fiscal deficit determining the interest rate in the context of India. The period of analysis is FY 2006-07 (April) to FY 2011 (April). Contrary to the debates in policy circles, the paper finds that an increase in the fiscal deficit does not cause a rise in interest rates. Using the asymmetric vector autoregressive model, the paper establishes that the interest rate is affected by changes in the reserve currency, expected inflation, and volatility in capital flows, but not by the fiscal deficit. This result has significant policy implications for interest rate determination in India, especially since the central bank has cited the high fiscal deficit as the prime reason for leaving the rates unchanged in all of its recent policy announcements. The paper analyzes both long- and short-term interest rates to determine the occurrence of financial crowding out, and finds that the fiscal deficit does not appear to be causing either shorts and longs. However, a reverse causality is detected, from interest rates to deficits.
    Keywords: C32 ; E62 ; H6 ; ddc:330 ; fiscal deficit ; asymmetric vector autoregressive model ; financial crowding out
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  • 30
    Publication Date: 2018-11-07
    Description: This paper evaluates whether the 2011 national stability programs (SPs) of the euro area countries are instrumental in achieving economic stability in the European Monetary Union (EMU). In particular, we analyze how the SPs address the double challenge of public deficits and external imbalances. Our analysis rests, first, on the accounting identities of the public, private, and foreign financial balances; and second, on the consideration of all SPs at once rather than separately. We find that conclusions are optimistic regarding GDP growth and fiscal consolidation, while current account rebalancing is neglected. The current SPs reach these conclusions by assuming strong global export markets, entrenched current account imbalances within the EMU as well as the deterioration of private financial balances in the current account deficit countries. By means of our simulations we conclude, on the one hand, that the failure of favorable global macroeconomic developments to materialize may lead to the opposite of the desired stability by exacerbating imbalances in the euro area. On the other hand, given symmetric efforts at rebalancing, the simulation suggests that for surplus countries that reduce their current account, a more expansionary fiscal policy will likely be required to maintain growth rates.
    Keywords: E10 ; E17 ; E62 ; F42 ; ddc:330 ; Euro area ; stability programs ; current account imbalances ; fiscal policy ; stability and growth pact
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Conventional wisdom contends that fiscal policy was of secondary importance to the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilized gold inflows to increase the money supply. Often, this is shown by measuring the fiscal multipliers, and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.
    Keywords: E62 ; E63 ; N12 ; ddc:330 ; fiscal policy ; Great Depression
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Since the early 1990s, the number of papers estimating econometric models and using other quantitative techniques to try to understand different aspects of the Chinese economy has mushroomed. A common feature of some of these studies is the use of neoclassical theory as the underpinning for the empirical implementations. It is often assumed that factor markets are competitive, that firms are profit maximizers, and that these firms respond to the same incentives that firms in market economies do. Many researchers find that the Chinese economy can be well explained using the tools of neoclassical theory. In this paper, we (1) review two examples of estimation of the rate of technical progress, and (2) discuss one attempt at modeling investment. We identify their shortcomings and the problems with the alleged policy implications derived. We show that econometric estimation of neoclassical models may result in apparently sensible results for misinformed reasons. We conclude that modeling the Chinese economy requires a deeper understanding of its inner workings as both a transitional and a developing economy.
    Keywords: C20 ; E22 ; E62 ; O23 ; P41 ; ddc:330 ; China ; identity ; investment ; neoclassical model ; total factor productivity growth
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Massive job losses in the United States, over eight million since the onset of the 'Great Recession,' call for job creation measures through fiscal expansion. In this paper we analyze the job creation potential of social service-delivery sectors-early childhood development and home-based health care-as compared to other proposed alternatives in infrastructure construction and energy. Our microsimulation results suggest that investing in the care sector creates more jobs in total, at double the rate of infrastructure investment. The second finding is that these jobs are more effective in reaching disadvantaged workers-those from poor households and with lower levels of educational attainment. Job creation in these sectors can easily be rolled out. States already have mechanisms and implementation capacity in place. All that is required is policy recalibration to allow funds to be channeled into sectors that deliver jobs both more efficiently and more equitably.
    Keywords: D30 ; E62 ; J48 ; ddc:330 ; social care ; job creation ; fiscal expansion ; distribution ; infrastructure
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: In recent years, the US public debt has grown rapidly, with last fiscal year's deficit reaching nearly $1.3 trillion. Meanwhile, many of the euro nations with large amounts of public debt have come close to bankruptcy and loss of capital market access. The same may soon be true of many US states and localities, with the governor of California, for example, publicly regretting that he has been forced to cut bone, and not just fat, from the state's budget. Chartalist economists have long attributed the seemingly limitless borrowing ability of the US government to a particular kind of monetary system, one in which money is a creature of the state and the government can create as much currency and bank reserves as it needs to pay its bills (this is not to say that it lacks the power to impose taxes). In this paper, we examine this situation in light of recent discussions of possible limits to the federal government's use of debt and the Federal Reserve's printing press. We examine and compare the fiscal situations in the United States and the eurozone, and suggest that the US system works well, but that some changes must be made to macro policy if the United States and the world as a whole are to avoid another deep recession.
    Keywords: E00 ; E32 ; E50 ; E62 ; E63 ; ddc:330 ; budget deficit ; federal debt ; debt tolerances
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The worst global downturn since the Great Depression has caused ballooning budget deficits in most nations, as tax revenues collapse and governments bail out financial institutions and attempt countercyclical fiscal policy. With notable exceptions, most economists accept the desirability of expansion of deficits over the short term but fear possible long-term effects. There are a number of theoretical arguments that lead to the conclusion that higher government debt ratios might depress growth. There are other arguments related to more immediate effects of debt on inflation and national solvency. Research conducted by Carmen Reinhart and Kenneth Rogoff is frequently cited to demonstrate the negative impacts of public debt on economic growth and financial stability. In this paper we critically examine their work. We distinguish between a nation that operates with its own floating exchange rate and nonconvertible (sovereign) currency, and a nation that does not. We argue that Reinhart and Rogoff's results are not relevant to the case of the United States.
    Keywords: E60 ; E61 ; E62 ; E64 ; E69 ; E32 ; O40 ; E31 ; ddc:330 ; government debt ; government deficit ; sovereign default ; Reinhart and Rogoff ; economic growth ; inflation ; modern money
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper investigates the United States dollar's role as the international currency of choice as a key contributing factor in critical global developments that led to the crisis of 2007-09, and considers the future role of the dollar as the global economy emerges from that crisis. It is argued that the dollar is likely to retain its hegemonic status for a few more decades, but that United States spending powered by public rather than private debt would provide a more sustainable motor for global growth. In the process, the 'Bretton Woods II' regime depicted by Dooley, Folkerts-Landau, and Garber (2003) as sustainable despite featuring persistent U.S. current account deficits may turn into a 'Bretton Woods III' regime that sees U.S. fiscal policy and public debt as 'minding the store' in maintaining U.S. and global growth.
    Keywords: E12 ; E61 ; E62 ; F02 ; F33 ; ddc:330 ; reserve currency ; global monetary order ; global financial crisis
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: The use of government fiscal stimulus to support the economy in the recent economic crisis has brought increases in government deficits and increased government debt. This has produced an interest in sustainable government debt and the role of deficits in the economy. This paper argues in favor of a concept of 'responsible' government policy, referring to positions held by Franklin and Marshall Professor Will Lyons. The idea is that government should be responsible to the needs and desires of its citizens, but that this should go beyond physical security and education, to economic security. Building on the fallacy of composition and misplaced concreteness, it suggests that in an integrated macro system an increased desire to save on the part of the private sector will be self-defeating unless the government acts in a responsible manner to support those desires. This can only be done by government dissaving via an expenditure deficit. The outstanding government debt simply represents the desires of the public to hold safe financial assets, and can only be unsustainable if the public's desires change. The government should always be responsive to these desires, and adjust its expenditure policy.
    Keywords: E61 ; E62 ; H31 ; H62 ; ddc:330 ; deficit spending ; sustainable deficits ; responsible fiscal policy ; Will Lyons
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  • 38
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Beyond its original mission to 'furnish an elastic currency' as lender of last resort and manager of the payments system, the Federal Reserve has always been responsible (along with the Treasury) for regulating and supervising member banks. After World War II, Congress directed the Fed to pursue a dual mandate, long interpreted to mean full employment with reasonable price stability. The Fed has been left to decide how to achieve these objectives, and it has over time come to view price stability as the more important of the two. In our view, the Fed’s focus on inflation fighting diverted ist attention from its responsibility to regulate and supervise the financial sector, and ist mandate to keep unemployment low. Its shift of priorities contributed to creation of the conditions that led to this crisis. Now in its third phase of responding to the crisis and the accompanying deep recession - so-called 'quantitative easing 2', or “QE2” - the Fed is currently in the process of purchasing $600 billion in Treasuries. Like its predecessor, QE1, QE2 is unlikely to seriously impact either of the Fed’s dual objectives, however, for the following reasons: (1) additional bank reserves do not enable greater bank lending; (2) the interest rate effects are likely to be small at best given the Fed’s tactical approach to QE2, while the private sector is attempting to deleverage at any rate, not borrow more; (3) purchases of Treasuries are simply an asset swap that reduce the maturity and liquidity of private sector assets but do not raise incomes of the private sector; and (4) given the reduced maturity of private sector Treasury portfolios, reduced net interest income could actually be mildly deflationary. The most fundamental shortcoming of QE - or, in fact, of using monetary policy in general to combat the recession - is that it only 'works' if it somehow induces the private sector to spend more out of current income. A much more direct approach, particularly given much-needed deleveraging by the private sector, is to target growth in after tax incomes and job creation through appropriate and sufficiently large fiscal actions. Unfortunately, stimulus efforts to date have not met these criteria, and so have mostly kept the recession from being far worse rather than enabling a significant economic recovery. Finally, while there is identical risk to the federal government whether a bailout, a loan, or an asset purchase is undertaken by the Fed or the Treasury, there have been enormous, fundamental differences in democratic accountability for the two institutions when such actions have been taken since the crisis began. Public debates surrounding the wisdom of bailouts for the auto industry, or even continuing to provide benefits to the unemployed, never took place when it came to the Fed committing trillions of dollars to the financial system - even though, again, the federal government is 'on the hook' in every instance.
    Keywords: E42 ; E43 ; E62 ; E63 ; ddc:330 ; quantitative easing ; monetary policy ; fiscal policy ; macroeconomic stabilization ; interest rates ; central bank operations
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: With the global crisis, the policy stance around the world has been shaken by massive government and central bank efforts to prevent the meltdown of markets, banks, and the economy. Fiscal packages, in varied sizes, have been adopted throughout the world after years of proclaimed fiscal containment. This change in policy regime, though dubbed the 'Keynesian moment,' is a 'short-run fix' that reflects temporary acceptance of fiscal deficits at a time of political emergency, and contrasts with John Maynard Keynes's long-run policy propositions. More important, it is doomed to be ineffective if the degree of tolerance of fiscal deficits is too low for full employment. Keynes's view that outside the gold standard fiscal policies face real, not financial, constraints is illustrated by means of a simple flow-of-funds model. This shows that government deficits do not take financial resources from the private sector, and that demand for net financial savings by the private sector can be met by a rising trade surplus at the cost of reduced consumption, or by a rising government deficit financed by the monopoly supply of central bank credit. Fiscal deficits can thus be considered functional to the objective of supplying the private sector with a provision of financial wealth sufficient to restore demand. By contrast, tax hikes and/or spending cuts aimed at reducing the public deficit lower the available savings of the private sector, and, if adopted too soon, will force the adjustment by way of a reduction of demand and standard of living. This notion, however, is not applicable to the euro area, where constraints have been deliberately created that limit public deficits and the supply of central bank credit, thus introducing national solvency risks. This is a crucial flaw in the institutional structure of Euroland, where monetary sovereignty has been removed from all existing fiscal authorities. Absent a reassessment of its design, the euro area is facing a deflationary tendency that may further erode the economic welfare of the region.
    Keywords: E12 ; E42 ; E62 ; ddc:330 ; government and the monetary system ; fiscal policy ; Keynes ; Euro area ; Finanzmarktkrise ; Subprime-Hypothek ; Geldpolitik ; Finanzpolitik ; Keynesianismus ; EU-Staaten
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Since the current recession began in December 2007, New Deal legislation and its effectiveness have been at the center of a lively debate in Washington. This paper emphasizes some key facts about two kinds of policy that were important during the Great Depression and have since become the focus of criticism by new New Deal critics: (1) regulatory and labor relations legislation, and (2) government spending and taxation. We argue that initiatives in these policy areas probably did not slow economic growth or worsen the unemployment problem from 1933 to 1939, as claimed by a number of economists in academic papers, in the popular press, and elsewhere. To substantiate our case, we cite some important economic benefits of New Deal-era laws in the two controversial policy areas noted above. In fact, we suggest that the New Deal provided effective medicine for the Depression, though fiscal policy was not sufficiently countercyclical to conquer mass unemployment and prevent the recession of 1937-38; 1933's National Industrial Recovery Act was badly flawed and poorly administered, and the help provided by the National Labor Relations Act of 1935 came too late to have a big effect on the recovery.
    Keywords: E20 ; E62 ; J58 ; L43 ; N12 ; ddc:330 ; New Deal ; public works projects ; NIRA ; NLRA ; cartelization ; unions ; labor relations policy ; fiscal policy ; fiscal stimulus ; unemployment ; Great Depression
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: In the face of the dramatic economic events of recent months and the inability of academics and policymakers to prevent them, the New Consensus Macroeconomics (NCM) model has been the subject of several criticisms. This paper considers one of the main criticisms lodged against the NCM model, namely, the absence of any essential role for the government and fiscal policy. Given the size of the public sector and the increasing role of fiscal policy in modern economies, this simplifying assumption of the NCM model is difficult to defend. This paper maintains that conventional arguments used to support this controversial assumptionincluding historical reasons, theoretical propositions, and practical issuesdo not have solid foundations. There is, in fact, nothing inherently monetary in the stabilization policies found in the model. Thus, fiscal policy could play a role at least as important as monetary policy in the NCM model.
    Keywords: E12 ; E62 ; C30 ; ddc:330 ; Fiscal policy ; new consensus ; Keynesian economics ; macroeconomic models
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Over the last two decades, those at the bottom of the income scale have seen their incomes stagnate, while those at the top have seen theirs skyrocket. Without intervention, the recession that began in December 2007 was likely to exacerbate this trend. Will the American Recovery and Reinvestment Act of 2009 (ARRA) be able to keep the situation from getting worse for those at the bottom of the income scale? Will ARRA reverse the upward trend in inequality that we have seen in the recent past? We employ a microsimulation of ARRA to address these questions. We find that, despite a large amount of job creation, ARRA is likely to have little impact on overall income inequality, or on the income gaps between relatively advantaged and disadvantaged groups.
    Keywords: D31 ; D63 ; E62 ; ddc:330 ; Income distribution ; inequality ; job creation ; American Recovery and Reinvestment Act ; policy impacts
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: Widespread economic recessions and protracted financial crises have been documented as setting back gender equality and other development goals in the past. In the midst of the current global crisisoften referred to as the Great Recession”there is grave concern that progress made in poverty reduction and women's equality will be reversed. Indeed, for many developing countries it is particularly worrisome that, through no fault of their own, the global economic downturn has exacerbated effects from other crises manifest in food insecurity, poverty, and increasing inequality. This paper explores both well-known and less discussed paths of transmission through which crises affect women's world of work and overall wellbeing. As demand for textile and agricultural exports decline, along with tourism, job losses are expected to rise in these femaleintensive industries. In addition, the gendered nature of the world of work suggests that women will see an increase in their share among informal and vulnerable workers worldwide, and will also supply more of their labor under unpaid conditions. The latter is particularly important in the context of developing countries, where many production activities take place outside the strict boundaries of the market. The paper also makes this point: examined through the prism of gender equality, the ability of the state to implement countercyclical policies matters greatly. If policy responses at the national and international levels end up aggravating inequities, gender equality processes face many more barriers, especially among the poor.
    Keywords: B5 ; E24 ; E61 ; E62 ; E64 ; G10 ; H1 ; J16 ; J21 ; J38 ; J48 ; O23 ; O24 ; ddc:330 ; Economic crisis ; gender ; employer of last resort ; unemployment ; poverty ; policy objectives ; development ; fiscal and monetary policy in development ; agricultural policies ; female employment in textiles and crisis ; agriculture and food security
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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  • 44
    Publication Date: 2018-11-07
    Description: The monetarist counterrevolution and the stagflation period of the 1970s were among the theoretical and practical developments that led to the rejection of fiscal policy as a useful tool for macroeconomic stabilization and full employment determination. Recent mainstream contributions, however, have begun to reassess fiscal policy and have called for its restitution in certain cases. The goal of this paper is to delimit the role of and place for fiscal policy in the New Economic Consensus (NEC) and to compare it to that of Post-Keynesian theory, the latter arguably the most faithful approach to the original Keynesian message. The paper proposes that, while a consensus may exist on many macroeconomic issues within the mainstream, fiscal policy is not one of them. The designation of fiscal policy within the NEC is explored and contrasted with the Post-Keynesian calls for fiscal policy via Abba Lerner's "functional finance" approach. The paper distinguishes between two approaches to functional financeone that aims to boost aggregate demand and close the GDP gap, and one that secures full employment via direct job creation - a link that the Post-Keynesian approach promises to restore.
    Keywords: E62 ; E12 ; E24 ; E31 ; ddc:330 ; Fiscal policy ; new economic consensus ; fiscal theory of the price level ; functional finance ; full employment
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This study proposes a simple modification to a Social Accounting Matrix (SAM) in order to analyze the multiplier effects of a new sector. A different input composition, or technology, of the sector makes a conventional analysis of final-demand injections on existing sectors invalid. We show that the modificationso-called hypothetical integrationis an efficient way to incorporate the difference into the SAM, rather than costly full-scale rebalancing. We apply this method to the case of the Expanded Public Works Programme in South Africa, and show that the proposed approach effectively represents the labor intensity requirement of the program and a new-factor income distribution.
    Keywords: C67 ; D57 ; E24 ; E62 ; H51 ; H52 ; ddc:330 ; Hypothetical integration ; multiplier analysis ; social accounting matrix ; social sector intervention ; Expanded Public Works Programme, South Africa
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: To put an economy on an equitable growth path, economic development must be based on social efficiency, equity, and job creation. It has been shown that unemployment has far-reaching effects, all leading to an inequitable distribution of well-being. But many economists assume that unemployment tends toward a natural rate below which it cannot go without creating inflation. The paper considers a particular employment strategy: a government job creation program, such as an employment guarantee or employer-of-lastresort scheme, that would satisfy the noninflationary criteria. The paper analyzes the international experience of government job creation programs, with particular emphasis on the cases of Argentina and India. We conclude by considering the application of an employer-of-last-resort policy to the developing world and as a vehicle to meeting the Millennium Development Goals.
    Keywords: D63 ; E24 ; E62 ; I38 ; J45 ; ddc:330 ; Employment policy ; employment of last resort ; promotion equality ; government job creation ; millennium development goals ; employment
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to close the demand gap,” are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is why true full employment is not possible via traditional pro-growth, pro-investment aggregate demand stimuli. This was well understood by Keynes, who preferred targeted job creation during expansions. But even in recessions, he did not campaign for wide-ranging aggregate demand stimuli; this is because different policies have different employment creation effects, which for Keynes was the primary measure of their effectiveness. There is considerable evidence to argue that Keynes had an on the spot” approach to full employment, where the problem of unemployment is solved via direct job creation, irrespective of the phase of the business cycle.
    Keywords: E01 ; E12 ; E62 ; B31 ; ddc:330 ; John Maynard Keynes ; public works ; fiscal policy ; full employment ; aggregate demand ; targeted demand ; demand gap analysis
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This working paper provides a survey of the theoretical underpinnings for the various employment guarantee schemes, and discusses full employment policy experiences in the United States, Sweden, India, Argentina, and France. The theoretical and policy developments are delineated in a historical context. The paper concludes by identifying some questions that still need to be addressed in the context of the global political economy.
    Keywords: B5 ; N0 ; E24 ; E62 ; E65 ; H68 ; ddc:330 ; ELR ; Full Employment ; Unemployment ; Job Creation ; Functional Finance
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: There is now widespread recognition that in most countries, private-sector investment has not been able to absorb surplus labor. This is all the more the case for poor unskilled people. Public works programs and employment guarantee schemes in South Africa, India, and other countries provide jobs while creating public assets. In addition to physical infrastructure, an area that has immense potential to create much-needed jobs is that of social service delivery and social infrastructure. While unemployment and enforced idleness” persist, existing time-use survey data reveal that people around the worldespecially women and childrenspend long hours performing unpaid work. This work includes not only household maintenance and care provisioning for family members and communities, but also time spent that helps fill public infrastructural gapsfor example, in the energy, health, and education sectors. This paper suggests that, by bringing together public job creation, on the one hand, and unpaid work, on the other, well-designed employment guarantee policies can promote job creation, gender equality, and pro-poor development.
    Keywords: B5 ; E24 ; E61 ; E62 ; H1 ; J16 ; ddc:330 ; Unemployment ; Poverty ; Employer of Last Resort ; Employment Guarantee Schemes ; Gender ; Household Production ; South Africa
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper deploys a simple stock-flow consistent (SFC) model in order to examine various contentions regarding fiscal and monetary policy. It follows from the model that if the fiscal stance is not set in the appropriate fashionthat is, at a well-defined level and growth ratethen full employment and low inflation will not be achieved in a sustainable way. We also show that fiscal policy on its own could achieve both full employment and a target rate of inflation. Finally, we arrive at two unconventional conclusions: first, that an economy (described within an SFC framework) with a real rate of interest net of taxes that exceeds the real growth rate will not generate explosive interest flows, even when the government is not targeting primary surpluses; and, second, that it cannot be assumed that a debtor country requires a trade surplus if interest payments on debt are not to explode.
    Keywords: E12 ; E62 ; F41 ; ddc:330 ; Stock-Flow Consistency ; Fiscal Policy ; Public Debt ; New Consensus on Monetary Economics ; Current Account Deficit ; Finanzpolitik ; Geldpolitik ; Leistungsbilanz ; Auslandsverschuldung ; Haushaltsdefizit ; Regelgebundene Politik ; Theorie
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    Annandale-on-Hudson, NY: Levy Economics Institute of Bard College
    Publication Date: 2018-11-07
    Description: This paper establishes the financial feasibility of an employer-of-last-resort (ELR) program in a small developing country like Tunisia. It argues that an ELR-led economic development policy is vastly superior to the traditional import substitution industrialization (ISI), export-led, and FDI-led development models, all of which Tunisia has adopted without much success in reducing unemployment. Despite outperforming its peers in terms of macroeconomic stability, Tunisia's official unemployment rate still hovers around 15 percent, with two-thirds of first-time job seekers having university degrees. The paper demonstrates that a well-targeted ELR program can be gradually introduced over a six-year period to remedy this problem by reclaiming sovereignty over the country's domestic monetary and fiscal policies under a floating exchange rate regime. The estimated ELR net wage bill would be around 2.7 percent of GDP; however, spending by ELR workers would offset program costs, and the net effect on GDP would be an increase of about 3.6 percent. The paper concludes by proposing a set of complementary policy reforms that must accompany an ELR program to ensure long-term growth sustainability along with full employment and price stability.
    Keywords: B5 ; O11 ; O23 ; O55 ; E24 ; E62 ; H63 ; ddc:330 ; Tunisia ; ELR ; Full Employment ; Unemployment ; Job Creation ; Functional Finance ; Flexible Exchange Rate ; Development ; Export-led Growth ; FDI-led Growth ; ISI
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English