University of Helsinki
Abstract. This paper analyses the role of inflation in economies with endogenous growth and congestion in public services. Optimal policy rules are derived for public services and investment. The other findings are as follows. Monetary policy should maximize economic growth. The more inefficient the public sector is, the higher the growth-maximizing inflation rate is. If a currency union accepts a new member with an inefficient public sector, this will boost inflation in the union and decrease growth and welfare in all member economies of the union. DOWNLOAD
(1997) The Centralization of Wage Bargaining, Investment, and Technological Change. Journal of Institutional and Theoretical Economics (JITE) 153: 657-
Abstract. This paper examines the centralization of collective bargaining where unions are Stackelberg leaders, firms invest in capital and purchase intermediate goods from each other, and where learning-by-investment causes persistent technological change. The main finding is the following. Provided that the elasticity of substitution between labor and intermediate inputs is not very high or very low, bargaining at the central or local level yields higher employment as well as a higher rate of investment and growth than bargaining at the medium level of centralization.
(1997) Inflation and Growth in an Open Economy. Economica 64: 509-518
Abstract. This paper examines the relationship between growth and inflation in an open economy where private agents can transfer resources abroad. To obtain endogenous growth, we assume that the international credit market is imperfect. We show that when the governments behave rationally growth and inflation rates should not be correlated, and the the optimal inflation rate can be found by setting the interest elasticity of money holdings equal to the tax elasticity of the tax base.
(1996) Endogenous Growth and Collective Bargaining. Journal of Economic Dynamics and Control 20: 925-944.
Abstract. Balanced growth is examined where R&D employs only skilled labour, and where the union and the employer federation bargain over the wages for skilled and unskilled labour. The first finding is that because the increase in R&D increases aggregate labour income, the union does not accept any agreement causing unemployment for skilled labour. Secondly, union power speeds up growth: higher wages for unskilled labour increase R&D through decreased final output and the transfer of skilled labour from the production of final goods to R&D. Finally, we show on what conditions union power is welfare-enhancing.
(1994) Taxation, Cost-Benefit Analysis, and Monopoly in an Open Economy. European Journal of Political Economy 10: 529-543.
Abstract. This paper looks at optimal taxation in an open economy with a monopoly. It is shown how the formulae concerning taxation and public investment criteria should be modified to take into account monopoly profit, monopoly power in the world market and the fact that with a monopoly, the consumer and producer taxes for nontradables are the same.
(1993) Temporary Cuts in Government Spending as an Anti-Inflationary Device. Economic Letters 43: 199-203.
Abstract. We examine an open one-good economy where money is kept for transactions purposes, the tax base is elastic to the tax rate, and the financial markets are well integrated. It is shown that a sharp but temporary cut in government spending gets inflation down.
(1992) Optimal Trade Policy in a Distorted Economy. European Journal of Political Economy 8: 201-212.
Abstract. The welfare implications of trade are examined in a general equilibrium framework where private oligopolies cause distortions. It is shown that a measure of trade policy should be carried out when it will increase production for the market yielding the highest rent. If the price elasticity of domestic demand is low, the opening of trade lowers the level of welfare although domestic products were optimally subsidized. Necessary and sufficient conditions for trade to increase welfare are found and the optimal commodity taxes are derived.
Discrete Exchange Rate Changes with Real Wage Resistance
(1992) Finnish Economic Papers 5: 38-46
Abstract. Fixed exchange rate policy is examined when money wages are determined by collective bargaining for fixed periods. The main results are as follows. If the interest elasticity of aggregate demand is high and the contract periods in the labour market are long, then in the short run, a devaluation produces expansion but in the long run, contraction. Expectations on a future devaluation cause expansion before the occurrence of the devaluation and at the moment of the occurrence, domestic expenditure falls discontinuously.
(1991) Investment, Profit-Sharing and the Degree of Centralization. Economics Letters 35: 99-103.
Abstract. This paper examines monopoly unions which are strong enough to use two-part tariffs (i.e., basic wages plus profit shares). It is shown that decentralization in bargaining increases the total pay per worker and lowers the levels of capital stock and income.