Industrial Development, Polarisation, and Fiscal Policy in an Underemployment Economy

Nakajima, Tetsuya (2013): Industrial Development, Polarisation, and Fiscal Policy in an Underemployment Economy.

Abstract

Industrial development is often accompanied by massive migration from agricultural to industrial areas. This paper compares two steady states, the first and the second, which emerge before and after the termination of such migration, respectively. The paper shows that 1) the employment rate must be lower in the second steady state, and that 2) while every household increases individual assets in the first steady state, households may polarise into the poor and the rich in the second steady state. By examining the effects of fiscal policy, the paper also shows that the balanced budget multiplier exceeds unity, and accordingly, fiscal policy raises households’ disposable income and consumption.

• Item Type: MPRA Paper
• Language: English
• Keywords: industrial development, migration, underemployment, wealth distribution, polarisation
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development

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