FISCAL-POLICY IN AN OPTIMIZING MODEL WITH FINITE LIVES AND ENDOGENOUS LABOR SUPPLY

In this paper the impact of balanced budget, money-financed and bond-financed fiscal policy is analyzed, in the short run as well as in the long run. The analysis is based on an optimizing model of a closed economy that displays perfect foresight of agents and sticky wages and prices. Consumers have finite planning horizons modeled according to the Blanchard-Yaari framework. Labour supply is endogenized by including leisure in the utility function. Labour scarcity is also allowed for. The results are illustrated by numerical simulation experiments. © 1990 Kluwer Academic Publishers.