Harry Flam

Industrial Policy under Monopolistic Competition

Abstract We study the general equilibrium effects of tariffs, export subsidies, output subsidies and RD subsidies in a monopolistically competitive sector that produces differentiated products. Apart from allocative effects we examine the desirability of these policies from a welfare point of view. It is shown that a small tariff is welfare improving, but that the other instruments result in ambiguous welfare changes. The results depend on identifiable details of the production structure, the sectoral interlinkages through factor markets and preferences. These results are compared to other findings in the literature.

EMU - A Swedish Perspective

Provides a comprehensive survey of the EMU project. Evaluates the main advantages and disadvantages of a single currency, integrating the economic and political aspects. This volume is a revised version of the report by the Swedish Government Commission on the EMU.

From EEA to EU: Economic consequences for the EFTA countries

Abstract The paper surveys and evaluates the economic consequences for Austria, Finland, Norway and Sweden of becoming members of the EU that are the least difficult to quantify, namely transfers to and from the EU budget, changes in agricultural policy, and changes in trade barriers. It concludes that the net effect of this subset of economic consequences is small or negligible for all candidate members.

Equal Pay for Unequal Work

Swedish labor unions pursue an egalitarian wage policy and have successfu lly squeezed wage differentials. The effects in the short run are a r ise in the wage of low-paid unskilled labor-as intended-and possibly also of high-paid skilled labor. But in the long-run, labors income share falls, as does the wage of skilled labor and possibly even unsk illed labor. Some unskilled labor becomes unemployed in both the shor t and long run. Resources are shifted into the export-competing secto r and away from the import-competing sector. Copyright 1987 by The editors of the Scandinavian Journal of Economics.

Optimal Subsidies to Declining Industries : Efficiency and Equity Considerations

This paper consider equity vs. efficiency in a small economy that subsidizes an industry facing falling world market prices. Subsidies keep up output in the short run when wages and factors are rig ...

Fiscal Policy and the EMU

By fiscal policy we mean decisions on taxation and public expenditure. Two aspects are central in connection with the monetary union. The first concerns how large government budget deficits and debts can be accepted. The second aspect relates to the role of fiscal policy in stabilising aggregate demand. The Maastricht Treaty contains fiscal policy rules for the size of government budget deficits and debts in each country. These rules were amended in the Stability and Growth Pact. There is also an ongoing discussion on what demands for flexibility of fiscal policy that arise because of the loss of monetary policy autonomy in a currency union.

Comment on J. P. Neary, "Pitfalls in the Theory of International Trade Policy: Concertina Reforms of Tariffs, and Subsidies to High-Technology Industries"

Peter Neary makes three points in his discussion of subsidies to hightechnology industries. First, the standard Brander-Spencer one-period duopoly model does not provide an argument for subsidies to high-technology industries. There is nothing in the model that identifies the firms as high-tech. If anything, the fixed and small number of firms is a description of any industry with high barriers to entry, low-tech as well as high-tech. Second, the Brander-Spencer three-period duopoly model does capture an important feature of high-technology industries, namely substantial initial investment in R&D. In the model, the government decides first about taxes or subsidies to the domestic firms R&D and output (or price). The firm invests in R&D in the first (actually second) period, which has a strategic effect on its rival both in the first and second period, when production takes place. But it turns out that the three-period model is plagued by the same kind of ambiguity as the one-period model, only doubly so. When second-period actions are strategic substitutes, the firm overinvests in the first period to give it a strategic advantage in the second period. The welfare-maximizing policy is to subsidize output in the second period and tax R&D in the first. When second-period actions are strategic complements, policies should be the opposite. Third, when R&D has positive spillovers to other firms, domestic and foreign, a subsidy is called for to prevent underinvestment by the domestic firms. Thus, there may be reasons to tax and to subsidize R&D at the same time, which makes for even more ambiguity. I would like to add to the ambiguity concerning subsidies to hightechnology industries by investigating the effects of subsidies under other assumptions about market structure and conduct. Nothing in what I have to say is new, but a serious consideration of the potential for public policy must be broader in scope than the market structure of two firms, no domestic consumption and strategic interaction. Consider first the case of perfect competition. A subsidy to exports is

The Labour Market and the Monetary Union

Unemployment rose sharply in the EU countries between 1975 and 1985. Since then, it has remained high. Figure 8.1 illustrates this. In Sweden, open unemployment was very low until the start of the 1990s, but it then rose between 1991 and 1994 from about 2 to about 8 per cent. But the rise in open unemployment understates the deterioration in the labour-market situation in Sweden, as participation in labour-market programmes (labour-market training and job-creation schemes) also increased dramatically. In 1994, participation in various labour-market programmes amounted to 5.2 per cent of the labour force. Total unemployment (the sum of open unemployment and participation in labour-market programmes) thus amounted to as much as 13.2 per cent of the labour force in 1994. Figure 8.2 shows this. After a slight reduction in 1994–95, total unemployment rose again in 1996. The figure then amounted to 12.6 per cent of the labour force (8.1 per cent in open unemployment and 4.5 per cent in labour-market programmes).

Macroeconomic Disturbances and Monetary Policy

Two possible consequences of a European monetary union are often contrasted with each other. On one hand, membership of the union can mean higher credibility for low inflation. On the other, the loss of monetary policy independence means less freedom of action in stabilisation policy and thus a risk of larger fluctuations in output and employment.

Currencies and Exchange-Rate Systems — A Background

This chapter provides a theoretical and historical perspective on the choice of exchange-rate system. Section 3.1 discusses the various functions of a national currency. Section 3.2 describes the differences between various exchange-rate systems. A monetary union may be seen as an exchange-rate system with irrevocably fixed exchange rates among the member countries. Its opposite is a system of floating exchange rates, such as the one that currently applies between the dollar, the yen, and the German mark. Several other systems exist between these two extremes. Section 3.3 describes historical experiences of various exchange-rate systems. Even if the European monetary union is unique in a historical perspective, lessons from other international monetary arrangements can be useful in an analysis of the consequences of introducing a single currency. Section 3.4 summarises the most important conclusions.