nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2015‒05‒09
eighteen papers chosen by
Karl Petrick
Western New England University

  1. A history of contemporary post Keynesian SFC model By LE HERON Edwin; MAROUANE Amine
  2. Trends in the Swedish Social Investment Welfare State: ‘The Enlightened Path’ or ‘The Third Way’ for ‘the Lions’? By Joakim palme; Axel Cronert
  3. The political economy of the distributional character of the Greek taxation system (1995–2008) By Ioannidis, Yiorgos
  4. Partners in Austerity: Jamaica, the United States and the International Monetary Fund By Jake Johnston
  5. Essentials of Constructive Heterodoxy: Behavior By Kakarot-Handtke, Egmont
  6. A case of ritual compliance? The role of European Structural Funds in the shaping of the Greek employment policy (1995‐2008) By Ioannidis, Yiorgos
  7. George Orwell as a Public Choice Economist By Makovi, Michael
  8. The Gains from Trade in a New Model from the IMF: Still Very Small By David Rosnick
  9. The Consequences of Increased Population Growth for Climate Change By David Rosnick
  10. A Green and Socially Equitable Direction for the ICT Paradigm By Carlota Perez
  11. The Future of Renewable Energy in the Mediterranean. Translating Potential into Reality By Simone Tagliapietra
  12. Are ethical and social banks less risky? Evidence from a new dataset By Marlene Karl
  13. The Triple Challenge for Europe: The Economy, Climate Change and Governance By Jan Fagerberg; Staffan Laestadius; Ben R. Martin
  14. Patent Monopolies and the Costs of Mismarketing Drugs By Ravi Katari, Dean Baker
  15. Preventing Factory Fires through Contracts: Case study of Garment Factories in Bangladesh By Sato, Hideki
  16. Regulating the Environmental Consequences of Preferences for Social Status within an Evolutionary Framework By Eftichios S. Sartzetakis; Anastasios Xepapadeas; Athanasios Yannacopoulos
  17. Why CBO Projects That Actual Output Will Be Below Potential Output on Average By Congressional Budget Office
  18. Current account “Core-periphery dualism” in the EMU By Tatiana Cesaroni; Roberta De Santis

  1. By: LE HERON Edwin; MAROUANE Amine
    Abstract: The purpose of this paper will be to show the main features of the post Keynesian stock-flow consistent modeling (SFC) with a presentation of the basic model of Lavoie Godley 2001. Then, we shall give a brief overview of the most important contributions in this search field. Special emphasis will be focused on the latest works, addressing several topics such as financialization, bank behavior, exchange rate, sectors analysis, heterogeneous agents or the impact of economic crisis. We shall present the matrices of stocks and flows and the remarkable equations.
    Keywords: SFC model, post Keynesian theory
    JEL: E12 E27 E40 E52 F43 O55
    Date: 2015
  2. By: Joakim palme; Axel Cronert
    Abstract: The concept of social investment has gained ground on the EU-level, manifested among other things in the launching of the ‘Social investment package’ by the EU Commission in 2013 and subsequent engagement in the follow up of that initiative. In this context, the Nordic experience has no doubt played an important role and Sweden is an interesting case in point for discussing the social investment approach. We argue that Sweden has long tradition of social investment which has contributed to a number of positive outcomes, such as low poverty and high employment. However, our examination of more recent trends suggests that the achievements are now jeopardised by the trend towards a cheaper ‘Third Way’ version of the social investment approach. Since the investment quality of policy interventions has been diluted, not least in the field of active labour market policy, and old redistribution policies are at drift, it has become difficult to combat old as well as new inequalities and social divisions. Still, a more enlightened development path is open but requires serious recasting of the social investment policy package.
    Keywords: Social investment, welfare state, Swedish reforms, poverty, redistribution, work intensity
    JEL: H53 I32 I38 J21
    Date: 2015–04
  3. By: Ioannidis, Yiorgos
    Abstract: The period between 1995 and 2008 is one of the fundamental transformations in the Greek economy. In that sense, we would expect an equally drastic change to have taken place in the structure of the taxation system. Nevertheless, no such change occurred. The explanation of this seeming paradox should be sought in the peculiar distributive (as opposed to redistributive) character of the Greek taxation system. The aim of this paper is to provide evidence for this phenomenon from a political economy perspective. The first section examines the general trends of taxation in Greece during the period 1995–2008 and the structure of personal income taxation. The second section delineates the basic features of the reform in income taxation and land taxation effected by the conservative government; lastly, the third part provides some critical commentary on the data as well as an interpretive context for the peculiar features of the Greek taxation system
    Keywords: Greece; taxation; political economy
    JEL: H00 H20 H24 H26
    Date: 2015
  4. By: Jake Johnston
    Abstract: This paper looks at Jamaica’s ongoing relationship with the International Monetary Fund and multilateral development banks, its recent economic performance and the impact on development of a persistently high debt burden. It finds that after 20 years of negative average annual per capita GDP growth, Jamaica continues to be plagued by high debt and low growth. Now in the third year of an IMF-backed economic program, Jamaica is running the most austere budget in the world, with a primary surplus of 7.5 percent of GDP. After two debt restructurings, both as preconditions to receiving IMF support, Jamaica still has a debt-to-GDP ratio of nearly 140 percent, and net flows from multilateral banks turned negative for two consecutive years. The paper finds that multilateral debt relief may be necessary for Jamaica to escape from its unsustainable debt burden, low-growth trap.
    Keywords: Jamaica, IMF, International Monetary Fund, austerity, Summit of the Americas
    JEL: F F5 F55 F53
    Date: 2015–04
  5. By: Kakarot-Handtke, Egmont
    Abstract: For a host of compelling methodological reasons, homo oeconomicus has to be replaced. This is consensus, the open question is how this could be accomplished. What is required first is the separation of the formal foundations into a structural and a behavioral part. This paper introduces the propensity function as general formalization of Economic Man/Woman. The propensity function is a compact formal expression of random, semi-random, and deterministic behavioral assumptions. It is shown how, in a random environment, target-oriented behavior produces stochastic stability and optimality in the product market. With homo oeconomicus the conception of simultaneous equilibrium, too, vanishes.
    Keywords: new framework of concepts; structure-centric; axiom set; determinism; indeterminism; propensity function; information function; action function; Law of Supply and Demand; price setting
    JEL: B59 D01 D8
    Date: 2015–04–30
  6. By: Ioannidis, Yiorgos
    Abstract: The relation of the Greek employment policy to the European one, as it was formulated within EES and the Lisbon strategy, was a particular one. The Greek employment policy fully adopted the form, the structure and the discourse of the EES but it was only marginally influenced by the “way of doing things.” The compliance of the Greek employment policy with the European guidelines for employment was primarily aimed at ensuring the precious flow of the European resources, and only secondarily at improving the effectiveness of the implemented policies. In that sense, the case of Greece, can be described as a case of “ritual compliance”; that is an adherence to the form rather than to the substance of the matter, a practice whose main objective is the unobstructed flow of European funding
    Keywords: Greece, employment policy, vocational policy, unemployment
    JEL: H00 J00 J08 J30 J38 J60 J65 J68
    Date: 2014
  7. By: Makovi, Michael
    Abstract: George Orwell is famous for his two final fictions, Animal Farm and Nineteen Eighty-Four. These two works are sometimes understood to defend capitalism against socialism. But as Orwell was a committed socialist, this could not have been his intention. Orwell's criticisms were directed not against socialism per se but against the Soviet Union and similarly totalitarian regimes. Instead, these fictions were intended as Public Choice-style investigations into which political systems furnished suitable incentive structures to prevent the abuse of power. This is demonstrated through a study of Orwell's non-fiction works, where his opinions and intentions are more explicit.
    Keywords: Orwell, Public Choice, socialism, totalitarianism, Neoconservatism
    JEL: B24 B31 D72 P20 P30 Z11
    Date: 2015–05–05
  8. By: David Rosnick
    Abstract: This paper takes a careful look at a recent International Monetary Fund (IMF) Working Paper that claims to find significant gains for liberalization of trade through the World Trade Organization. It is not clear that the reported gains are at all large. The IMF paper shows that multilateral liberalization increases consumption perhaps 0.014 percent. This would be about 43 cents per person per month in the United States. One significant result of the IMF paper is that potential gains of multilateral trade liberalization are very small even in a formal New Keynesian model incorporating economies with significant power in international markets.
    Keywords: IMF, WTO, trade, trade liberalization
    JEL: F F1 F13 F17 F14 F16 F10
    Date: 2015–04
  9. By: David Rosnick
    Abstract: This paper examines the impact of population growth on global climate change. The author employs the Global Change Assessment Model (GCAM) to estimate the effects of population growth on the change global average temperature by 2100. Observing that a larger population supports a larger economy, which translates in close proportion into additional releases of carbon dioxide (CO2), the paper notes that global temperature should in any year be nearly linear in relation to the rate of growth when the rate of population growth is constant. The paper finds that that an additional 1 percentage point of population growth through the end of the century would coincide with about an additional 2 degrees Fahrenheit in average global temperatures. Over time, the temperature change is greater and becomes increasingly sensitive to population growth.
    Keywords: environment, climate change, population, population growth, Global Change Assessment Mode
    JEL: Q Q5 Q54
    Date: 2014–12
  10. By: Carlota Perez
    Abstract: This paper takes up Chris Freeman's challenge of facing the environmental limits with science, technology and innovation in order to keep open the possibilities of the developing world along a sustainable "green" growth path. It analyses the differences between the energy intensive paradigm of mass production and consumerism in mid-20th Century and the potential shift to sustainability generally provided by the ICT revolution. It then focuses on the developing world and examines the changes in the global market context that are creating windows of opportunity for local innovation, social inclusion and green growth. It finally discusses the alliances and conditions for taking full advantage of the available transformative potential.
    Date: 2014
  11. By: Simone Tagliapietra (Fondazione Eni Enrico Mattei)
    Abstract: This study seeks to provide a clear and comprehensive overview on the various aspects related to the current status and the future prospects of renewable energy (namely solar and wind) in Southern and Eastern Mediterranean countries (SEMCs). In order to do so, the study will first provide a comprehensive analysis of the regional energy market, particularly focusing on the booming energy -and electricity- demand. This key trend is likely to further accelerate in the future, at a level that might create additional risks to the economic sustainability of the region, considering the extensive use of universal fossil-fuel consumption subsidies. Meanwhile, solar and wind energy continue to cover less than 1% of the region’s electricity generation mix: a figure that strongly collides with the region’s abundant solar and wind resources. In fact, SEMCs are endowed with a huge solar and wind energy potential. The exploitation of this potential could bring various benefits to the region, such as meeting the rising energy/electricity demand at a lower cost, freeing up additional export volumes of oil and gas in energy exporting countries, reducing energy bills in energy importing countries, creating new jobs, alleviating energy poverty, enhancing the quality of the environment and enhancing cooperation both among SEMCs and between SEMCs and the EU. Notwithstanding all the efforts to promote renewable energy carried out over the last decade both at the regional level and at the European level (e.g. Desertec, Mediterranean Solar Plan, etc.), SEMCs continue to lag far behind most other regions in the world in terms of solar and wind energy deployment. This study will try to explore the reasons of this paradox, particularly focusing on the key barriers to the development of renewable energy in the region: the extensive use of energy subsidies and the lack of adequate electricity infrastructures, energy regulatory frameworks and financing mechanisms. On the basis of this in-depth analysis, the study will propose an innovative approach to tackle these barriers, involving a joint action of MedTSO, MEDREG and key financial institutions under the umbrella of a newly-established “Euro-Med Renewable Energy Platform” designed to become -on the basis of an inclusive, pragmatic and bottom-up approach- the new catalyst for the development of renewable energy in SEMCs.
    Keywords: Mediterranean Energy Markets, Renewable Energy, CSP, Solar Energy, Wind Energy
    JEL: Q40 Q42 Q48
    Date: 2015–04
  12. By: Marlene Karl
    Abstract: This paper introduces a new and comprehensive dataset on “alternative” banks in EU and OECD countries. Alternative banks (e.g. ethical, social or sustainable banking) experienced a recent increase in media interest and have been hailed as an answer to the financial crisis but no research exists on their stability. This paper studies whether alternative banks differ from conventional banks in terms of riskiness. For this I construct a comprehensive dataset of alternative banks and compare their riskiness with an adequately matched control group of conventional banks using mean comparison and panel regression techniques. The main result is that alternative banks are significantly more stable (in terms of z-score) than their conventional counterparts. The results are robust to different estimation methods and data specifications. Alternative banks also have lower loan to asset ratios and higher customer deposit ratios than conventional banks.
    Keywords: Ethical banking, social banking, bank risk, financial crisis
    JEL: G21 G32 E44 M14
    Date: 2015–05
  13. By: Jan Fagerberg (Professor, University of Oslo, Aalborg University, and Lund University); Staffan Laestadius (Professor Emeritus, Sustainability and Industrial Dynamics Division, Department of Industrial Economics & Management, Royal Institute of Technology, Stockholm); Ben R. Martin (Professor of Science and Technology Policy Studies, SPRU, University of Sussex)
    Abstract: Europe is confronted by an intimidating triple challenge Ð economic stagnation, climate change, and a governance crisis. This paper demonstrates how the three challenges are closely inter- related, and discusses how they can be dealt with more effectively in order to arrive at a more economically secure, environmentally sustainable and well governed Europe. In particular, a return to economic growth cannot come at the expense of greater risk of irreversible climate change. Instead, what is required is a fundamental transformation of the economy to a new ÔgreenÕ trajectory based on rapidly diminishing emission of greenhouse gases. This entails much greater emphasis on innovation in all its forms (not just technological). Following this path would mean turning Europe into a veritable laboratory for sustainable growth, environmentally as well as socially. The paper is based on a forthcoming book: Fagerberg, J., S. Laestadius and B. R. Martin eds. (2015) The Triple Challenge for Europe: Economic Development, Climate Change and Governance, Oxford University Press.
    Date: 2015–04
  14. By: Ravi Katari, Dean Baker
    Abstract: Patent monopolies have long been used as a mechanism for financing innovation and research. The logic is that the government awards a monopoly on a product or process for a limited period of time in order to reward innovation. However, in addition to providing incentives for innovation and research, patent monopolies also provide incentives for a wide-range of rent-seeking behaviors, many of which can have major social costs. This paper attempts to calculate one category of these costs for prescription drugs. It produces estimates of the costs associated with mismarketing drugs. The estimates are based on assessments of the costs in the form of increased morbidity and mortality associated with five prominent cases of mismarketing over the last two decades.
    Keywords: trade deficit, pharmaceuticals, off-label, rent-seeking, mismarketing, Vioxx, Avandia, Bextra, OxyContin, Zyprexa, Pfizer, Merck, GlaxoSmithKline, Eli Lilly, Purdue
    JEL: I I1
    Date: 2015–04
  15. By: Sato, Hideki
    Abstract: Following a multi-decade history of lethal fires in the Bangladeshi garment industry, Sato (2012) proposed a contract framework that encourages manufacturers to adopt measures that reduce loss of life. Apart from the humanitarian imperative, the manufacturer has an incentive to sign the contract and adopt its preventative measures because an industrial disaster will cancel its relationship with its global retailer and end the related profits. This theoretical study specifies the optimal contract that incentivizes manufacturers and reduces the occurrence of garment industry fires.
    Keywords: Garment factory fires, Safety measures, Retailer, Optimal contract
    JEL: D62 D82 L67
    Date: 2015–04–30
  16. By: Eftichios S. Sartzetakis (University of Macedonia, Department of Economics); Anastasios Xepapadeas (Athens University of Economics and Business and Beijer Fellow); Athanasios Yannacopoulos (Athens University of Economics and Business)
    Abstract: Taking as given that we are consuming too much and that overconsumption leads to environmental degradation, the present paper examines the regulator's choices between informative advertisement and consumption taxation. We model overconsumption by considering individuals that care about social status apart from the intrinsic utility, derived from direct consumption. We assume that there also exist individuals that care only about their own private consumption and we examine the evolution of preferences through time by allowing individuals to alter their behavior as a result of a learning process, akin to a replicator dynamics type. We consider the regulator's choice of consumption taxation and informative advertisement both in an arbitrary and an optimal control context. In the arbitrary overconsumption control context we find that the regulator could decrease, or even eliminate, the share of status seekers in the population. In the context of optimal overconsumption control, we show that the highest welfare is attained when status seekers are completely eliminated, while the lowest in the case that the entire population consists of status seekers.
    Keywords: Status-seaking, Replicator Dynamics, Information Provision, Environmental Taxation
    JEL: Q53 Q58 D62 D82
    Date: 2015–04
  17. By: Congressional Budget Office
    Abstract: CBO’s estimate of the output gap—the percentage difference between actual and potential output—gauges slack or overheating in the economy. For the latter half of its 10-year projection period, CBO projects that actual output will grow at the same rate as potential output but fall short of potential by about half a percent, on average—matching the average estimated gap between actual and potential output from 1961 to 2009.
    JEL: E20 E27 O47
    Date: 2015–02–10
  18. By: Tatiana Cesaroni; Roberta De Santis
    Abstract: Current account (CA) dispersion within European Union (EU) member states has been increasing progressively since the 1990s. Interestingly, the persistent deficits in many peripheral countries have not been accompanied by a significant growth process able to stimulate a long run rebalancing as neoclassical theory predicts. To shed light on the issue this paper investigates the determinants of Eurozone CA imbalances, focusing on the role played by financial integration. The analysis considers two samples of 22 OECD and 15 EU countries, three time horizons corresponding to various steps in European integration, different control variables and several panel econometric methods. The results suggest that within the OECD and EU groups, financial integration contributed to explain CA deterioration in the peripheral countries especially in the post-EMU period. The business cycle seems to have played a growing role over time, whereas the role of competiveness seems to have diminished with respect to the past.
    Keywords: current account imbalances, financial integration, EMU, core-periphery countries, panel econometric models
    JEL: F36 F43
    Date: 2015–03

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